Why is the supply of Bitcoin not pegged to its demand?

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GDP (and most other stats you would think to use for this) can't be accurately determined by the network without trusting someone. The network can only see the movement of BTC; it has no information about non-BTC currencies, goods, or services. For GDP, some centralized organization would need to figure out the the real amount of spending in the BTC economy. The network can't just look at the total BTC transaction volume to figure this out, since someone could send BTC to himself in an undetectable way in order to inflate the volume stat.

One of Bitcoin's primary goals is to be decentralized, so it can't rely on a central authority. Therefore, the money supply needs to be set according to some algorithm that looks only at raw Bitcoin transactions and blocks. Satoshi chose to make the supply asymptotic because he thought that this was basically how gold worked, and gold has thousands of years of history as good money.

By the way, GDP would be a poor statistic to use...

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The supply of Bitcoin is increasing at a decreasing rate. The Bitcoin supply curve/algorithm is already baked into the price--today--even though more Bitcoins are coming in the future. If the supply curve just went to infinity (by design) Bitcoin would be less attractive every day of the week, ceteris paribus. But it doesn't: How many bitcoins will there eventually be?

In a vacuum, this depends on Bitcoin keeping the original supply limit in place. Most experts seem to believe this limit won't ever change. In theory, the ultimate supply could be changed by modifying the software. However, this seems unlikely for various reasons beyond the scope of this answer.

In reality, to understand Bitcoin demand, you must factor in the market adoption of all cryptocurrencies/altcoins. You must factor in the growing supply and usefulness of all cryptocurrencies, Bitcoin's mindshare, the strength of the Bitcoin brand, the strength of Bitcoin's development team, the rate of adoption...

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This week, Bank of America (NYSE:BAC) became the first major U.S. financial institution to cover the digital currency Bitcoin. In the report, analyst David Woo estimated a maximum fair value of $1,300 and a maximum market capitalization of $15 billion.

Let's hope this is just a PR stunt, an attempt to make the bank appear younger, hipper, or part of the tech in-crowd. Because for actual investors, this exercise in prognostication is a waste of time. Here's why.

Covering tulips in 1637
What is Bitcoin, exactly? Proponents will tell you it's a nonfiat currency. It's a way to do transactions in the modern age free from the government, bank, and regulatory restraints of our current fiat system. They'll tell you it's the future of commerce. It's a panacea from financial oppression.

Others will tell you that Bitcoin is a flash in the pan asset, not a currency at all. It's a tulip bulb. It's a series of ones and zeroes being traded -- no, speculated upon --...

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Because pegging a currency is *really, really hard*. Several major countries have tried and failed to do this, and when it blows up the results can be very bad (i.e. Argentina).

You can either do "full reserve" or "fractional reserve." Hong Kong has a full reserve system, in which you guarantee that ever coin in circulation is backed by the right amount of US dollars. The trouble with full reserve is that you need billions of dollars and there is a limit to how much you can scale the system.

You can do fractional reserve, but the problem here is that if people know you don't have a full reserve, they will try to break the bank. What this involves doing is borrowing a ton of coin, then selling it to the bank and getting back the pegged value. This works until the bank runs out of dollars, at which point the coin crashes, and you get to pay back the coin debt cheaply.

George Soros made billions of dollars by breaking the Bank of England. If there are people that can...

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Imagine being told that your wage was going to be cut in half. Well, that’s what’s soon going to happen to those who make money from Bitcoin mining, the process of earning the online currency Bitcoin.

The current expected date for this change is 11 July 2016. Many see this as the day when Bitcoin prices will rocket and when Bitcoin owners could make a great deal of money. Others see it as the start of a Bitcoin crash. At present no one quite knows which way it will go.

Bitcoin was created in 2009 by someone known as Satoshi Nakamoto, borrowing from a whole lot of research methods. It is a cryptocurrency, meaning it uses digital encryption techniques to create bitcoins and secure financial transactions. It doesn’t need a central government or organisation to regulate it, nor a broker to manage payments.

Conventional currencies usually have a central bank that creates money and controls its supply. Bitcoin is instead created when individuals “mine” for it by...

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Known for its unique features and great perks, bitcoins are considered to be the most popular crypto-currency in the world; hence, more and more people want to acquire these digital coins. Read more about how to get them by clicking here. There are important things you must consider to get bitcoins and one of them is the Bitcoin Price.

Among other currencies in the world, the Bitcoin Price can be considered one of the most unpredictable as the changes in its rate is extreme. It has dropped as low as $3 and it reached the highest peak at $260. Hence, as bitcoin enthusiast you must know the aspects and factors that affects Bitcoin Price and the how to use the Bitcoin calculator and the Bitcoin chart.

– Supply of Bitcoins

It is of general knowledge that the price of bitcoins follows the law of supply and demand. The higher the demand and the lower the supply of bitcoins, its price will surely soar. Bitcoins has controlled supply wherein the number of bitcoins...

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Bitcoin is just like all other digital currencies; nothing new

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Bitcoins don't solve any problems that fiat currency and/or gold doesn't solve

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Bitcoin is backed by processing power

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Bitcoins are worthless because they aren't backed by anything

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The value of bitcoins are based on how much electricity and computing power it takes to mine them

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Bitcoins have no intrinsic value (unlike some other things)

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Bitcoins are illegal because they're not legal tender

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Bitcoin is a form of domestic terrorism because it only harms the economic stability of the USA and its currency

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Bitcoin will only enable tax evaders which will lead to the eventual downfall of civilization

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Bitcoins can be printed/minted by anyone and are therefore worthless

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Bitcoins are worthless because they're based on unproven cryptography

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Early adopters are unfairly rewarded

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21...
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When it comes to Bitcoin, nothing is simple. It takes a bit of a learning curve for anyone to grasp the concepts that govern the futuristic currency, but it’s possible to reach an understanding of how the Bitcoin price works, as well as the factors that cause volatility.

Like any other currency, Bitcoin’s price is defined by the supply and demand model. What makes supply and demand fluctuate becomes the real question then. However, it must be noted that price is different from value. Price is the exchange rate of Bitcoin with some other currency, while the value is perceptive and subjective to each individual.

Bitcoin differs in the sense that, like other currencies, it can’t be printed or produced indefinitely and, therefore, there is a limit to how many Bitcoins there could ever exist.

At the time of writing there are 14 million and six hundred thousand Bitcoins in circulation and it will take almost 100 to 125 years for Bitcoin to reach the 21 million market...

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A lot of people ask about investing in bitcoin, or if they should. This piece goes through the pros and cons, and various options. It will cover what bitcoin is, and a bit of the history of the digital currency as an investment vehicle. If you are considering investing in bitcoin, we recommend you do your own research before making any decisions. This guide does not seek to recommend or advise investing in bitcoin, but acts as a resource for people trying to understand it better.

What is bitcoin?

Bitcoin is a digital currency – it consists of tokens that can be exchanged between people on an online ledger cheaply, securely and quickly. It is not owned or controlled by a bank or central body, but processed by a distributed worldwide network of software called the blockchain.

Transactions using the blockchain are verified multiple times using encryption to ensure no fraudulent transactions occur. This distributed network is currently more powerful than the top...

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With China’s example at hand, one may think the idea of pegging the Bitcoin to the US dollar may become the salvation to most of bitcoin's problems.

China became the second biggest economy in the world by pegging their currency to the dollar at an artificially cheap rate. This boosted exports and built up reserves to the multi-trillion yuan level - of which more than a 1 trillion is US dollars.

The Chinese workers themselves cannot afford the goods they make for Apple and hundreds of other companies that manufacture their products on ‘the world’s factory floor’ but they are better off working in these sweatshops than working the land; so we are told.

With Bitcoin, there is an interesting corollary with China and its currency peg. And the question is, why not peg Bitcoin to the dollar, at let’s say $100 BTC to the dollar.

This might solve two problems. First, the volatility issue - with merchants and spenders of Bitcoin uncomfortable with the...

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Tuur Demeester is an independent investor, newsletter writer and editor in chief at Adamant Research. Launched in 2015, Adamant Research provides a monthly newsletter service. The inaugural report, ‘How to Position for the Rally in Bitcoin’ can be found here.

2015 was another rollercoaster year for bitcoin: incredible amounts of infrastructure development, lots of talk about ‘the blockchain’ and the fierce scalability debate, all against the backdrop of a crash to $150, which was followed by a high of $500 (so far).

Let's reflect back on the ups and downs of bitcoin's financial history, and then we can look forward to the ride to come.

Here's my condensed take on the financial history of bitcoin:

2009-2010: Conceptualization

This is the pre-history of bitcoin-the-currency, as there’s hardly even a price for the tokens generated by the bitcoin software.

A lot of technical and economic discussions take place, and core developers...

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A pegged, or fixed system, is one in which the exchange rate is set and artificially maintained by the government. The rate will be pegged to some other country's dollar, usually the U.S. dollar. The rate will not fluctuate from day to day.

A government has to work to keep their pegged rate stable. Their national bank must hold large reserves of foreign currency to mitigate changes in supply and demand. If a sudden demand for a currency were to drive up the exchange rate, the national bank would have to release enough of that currency into the market to meet the demand. They can also buy up currency if low demand is lowering exchange rates.

Countries that have immature, potentially unstable economies usually use a pegged system. Developing nations can use this system to prevent out-of control-inflation. The system can backfire, however, if the real world market value of the currency is not reflected by the pegged rate. In that case, a black market may spring up, where...

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Unlike OneCoin affiliates, I wasn’t expecting much to be announced at their London CoinRush event.

My thinking was if they had the merchants (100,000 “ready to go” or otherwise), they’d have gone live with them back in May as originally promised.

So, what did happen at the CoinRush event?

OneCoin launched OneLife, which appears to be a pointless rebranding attempt. Well, sort of.

The old OneCoin domain is live, with a new website design – so I’m not really sure what the point of OneLife is. A visit to the OneLife website reveals it’s pretty much the same as the OneCoin website, just a different design.

The OneCoin website meanwhile has been updated with a whole bunch of new cryptocurrency rhetoric. The irony continues, with OneCoin not being publicly tradeable, listed on any public exchange or useable for anything other than internal transfer between investors.

Affiliate complaints on the OneCoin Facebook page suggest converting OneCoin to...

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