bosa-pro domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/gumbeau1/public_html/gumbeauxcapital/wp-includes/functions.php on line 6131Narrated as “retail-mania”, the financial world has seen its fair share of oddities in the recent months such as the short interest exploitations on equities, liquidity in historic excess, the reflation trade debate, and the elephant in the room: cryptocurrencies, and in particular, Bitcoin. As Bitcoin has exceeded above $50,000, many investors seemed to be enticed by the assets performance and may have varying speculations about it. Some investors feel as if Bitcoin is a new paradigm, and or some may feel as it is a new store of value (i.e., gold), and some may feel as if Bitcoin is just a classic bubble. But to contextualize any set speculation, one must review the dynamics of an asset.
Unlike traditional currency, Bitcoin does not rely on a central bank, so therefore the valuation of Bitcoin is solely dependent on the supply parameters of the cryptocurrency. To further elaborate, Bitcoin carries a simple value model, so simple that an elementary economist could pick it up with enough observation; in which it is actually the derivative of all economic philosophies, as scarcity is Bitcoin’s inflection. Bitcoin is the quintessential mechanism of money supply scarcity. How so? Bitcoin creation isn’t as simple as the Federal Reserve’s method of monetary supply creation. Bitcoins have to be mined and cannot be simply printed. “Miners” are put in place, as sole-proprietary administration, who validate transactions and generate the monetary base via a virtuously asymmetric cryptography chain (known as “blockchain”).
A blockchain is where groups of asset transactions are grouped into separate “blocks”. These “blocks” store information about transfers of bitcoin from one end of its network to the other, just like a Venmo payment where a payment purpose must be specified. From this, the information regarding the payment is condensed into a “hash” (generated from using cryptographic hashing functions) along with time information, prior transaction hashes, and the difficulty of hash generation is flowed through a sequential set of blocks that outline each transaction going forward.
Bitcoin creator, Satoshi Nakamoto, developed a devious method of reinforcing the structure of the Bitcoin blockchain, and accentuating the thematic of scarcity, through elongating the hash generation process via providing misnomers that are required to be solved. This makes it to where the Bitcoin blockchain cannot be achieved through the intended “sole-proprietorship”, but as a mere collective. To further abide to the thematic of scarcity, the Bitcoin misnomer becomes marginally more difficult to solve with more miners attempting to solve the misnomer. It is also key to note that unlike traditional coins and cash, Bitcoin transactions are publicly auditable through the said blockchain, so therefore the amount of Bitcoin cannot be stabilized, but simply mitigated.
So, in theory, Bitcoin uses a virtue of gamification to incentivize its “players”, as the “players” (miners) not only contribute to the supply, but also provide maintenance to the monetary base. This would intrinsically mean that the demand for Bitcoin would be unit elastic relative to the mining volume. Given the marginal scarcity nature of Bitcoin, it looks to be as if this asset is fundamentally headed towards becoming a victim of diminishing marginal returns as any shock in demand must be absorbed in price.
The model of Bitcoin poses a binary set of instability in which supply is “sticky” causing highly volatile price schematics (given that demand changes must be absorbed by price), which subsequently leads to a direct correlation between Bitcoin supply and a diseconomy of scale. It is safe to assume that speculative liquidity can play as an extrapolated catalyst of volatility, leaving room for a magnitude of position risks.
Given our assessments… if you took anything from this read, remember that any change in demand for Bitcoin must be absorbed in price, and and not applicable for consumption or stabilization. Therefore (take it how you want it) the greater the trend, the greater the correction will be in regards to price.