Bitcoin Supply, Demand, Hash Rates, Halving, Fiction, And Irony Of The Day

By Mish Shedlock of MishTalk
Monday, December 26, 2022 5:06 PM EST

Bitcoin Free Use 2

Bitcoin Halving

Wrong. Period.

Halving pertains to the rate of increase ofsupply. The price of Bitcoin is a function of the overall desirability to hold Bitcoin and the supply increases every day. 

Sentiment, not halving, not hash rate, drives the price of Bitcoin. 

Someone has to hold every Bitcoin ever mined 100 percent of the time. Excluding lost keys, the supply of Bitcoin is ever Bitcoin ever mined and supply increases every day.

As with any investment (e.g. gold, Apple, housing, Bitcoin) an investor must decide if they prefer that asset to cash. The flip side is a person or firm must decide if they want to hold cash, the asset they currently hold, or something else.

It is the marginal propensity (increases or decrease in sentiment) that determines whether price rises or falls. Bitcoin is not different.  

And with Apple, Google, Exon-Mobil, earnings and dividends factor in. Bitcoin and gold have no earnings or dividend yield. Gold at least has thousands of years of history as money on its side.

The power of Bitcoin is not baked in. Period.

Is Halving Baked Into the Price?

Silly Statements Regarding Demand

Demand does not increase just because the rate of increase in supply is falling. 

This is obviously true, but most in the Bitcoin universe live in echo chambers where such nonsense so often people come to believe it.

Irony of the Day

"If gold served it’s purpose as global money, why are 8 billion people using free float fiat government currencies today?"

The irony of that question is stunning. It's even more ironic given the person asking the question knows the answer.

8 billion people use fiat currencies because they have to. If you don't pay your taxes, in fiat mandated, you end up in prison. 

Do you see the irony yet?

Bitcoin advocates believe Bitcoin will be money despite the fact that governments want to be paid in fiat, not Bitcoin.

While taunting gold, Dylan magically believes that governments will accept Bitcoin as money having trashed gold as money. 

Dylan is not alone. Nearly the entire set of crypto advocates believes that Bitcoin is money or will eventually be money.

A Word About Never

I hate using the word "never" but in this case I believe it applies. "Bitcoin has yet to succeed as money, and never will." 

Will any major governments ever accept Bitcoin as money and demand payment in it? 

I think not because it would lessen their control over people. 

Is Anyone Paid in Bitcoin?

It's theoretically possible but in practice almost never. There is a huge difference between being paid in dollars with that converted to Bitcoin than being paid in Bitcoin.

If you have a contract that pays Bitcoin Per Hour I will accept that as being paid in Bitcoin. Otherwise, that's not what's happening. 

Can You Pay Taxes In Bitcoin?

No, you cannot, except perhaps in meaningless setups like El Salvador. Even there, is anyone actually doing so?

Fundamentally, except by direct barter, you generally cannot pay any bill or buy anything with Bitcoin. 

Before you make a fool of yourself rebutting that statement, read it over and over until you get it. 

I have seen Tweet threads where people claim "Every transaction I made this year was in Bitcoin." 

Well, it didn't happen. But I can rephrase that so that it is accurate. "Every transaction I made this year involved Bitcoin".

That's quite different. Behind the scenes, you have to sell Bitcoin for fiat and pay in fiat. The only time that is not true is direct barter. 

Here's an example. You have Bitcoin and want to buy a used car from an individual. That person loves Bitcoin and will hold it.

There is no increase in supply or demand of Bitcoin as a result of this transaction.

This adds another layer of irony. The person trading Bitcoin (trading = barter) would rather have a used car than Bitcoin.

Delusion of the Day

Anyone who truly believes Bitcoin is good for the environment or can be used to stabilize the grid is truly delusional.

Miner Bankruptcies

Some miners go bankrupt because they borrowed money to buy mining equipment.

If the price of Bitcoin doesn't cover interest + electricity costs, then the mining firms exist the business go bankrupt.

Echo Chamber

Every day the echo chamber on Twitter gets louder and louder. One person Tweeted that a $1 million price prediction for Bitcoin was bearish. 

What's going on should be obvious. 

These echo chambers primarily consist of HODLers seeing the value of their Bitcoin plummet.

They try to help their cause (sucker in more greater fools), with ridiculous price projections and patently false comments about supply, demand, hash rates, etc. 

Once trapped inside these echo chambers, it's very difficult to escape. People believe what they want to believe rather than accept they made a mistake.

Looking Ahead

Looking ahead, I cannot tell you if sentiment towards, stocks, gold, or Bitcoin will rise or fall in 2023 and beyond. 

Importantly, no one else can either. At a minimum, it's best to stay away from shills and their million dollar price tags.

But one thing I can say is the Fed is after speculative assets. It makes no difference if the Fed's intent is direct or indirect. 

The Fed has repeated commitments to hiking and reducing inflation. It is reducing its balance sheet. The prices of houses and rent are too high in its mind. 

Speculative assets tend not to do well in such environments. Cathie Wood's ARK fund and Bitcoin seem to be in the same boat. 

This doesn't it's impossible for Bitcoin to decouple from the setup, but until the Fed pivots and perhaps until the huge speculators like Michael Saylor and his leveraged bet get wiped out you are swimming upstream with liquidity and wind in your face. 

Are You Keeping the Faith in Cathie Wood's ARK?

(Click on image to enlarge)

ARKK chart courtesy of StockCharts.Com, annotations by Mish

ARKK chart courtesy of StockCharts.Com, annotations by Mish

Some never had faith in ARK or Cathie Wood to begin with. But if you did, do you still?

For discussion please see Are You Keeping the Faith in Cathie Wood's ARK?

As a thought exercise, Are You Keeping the Faith in Bitcoin? (or Tesla or technology or gold or anything)

If so, why? Are you caught in an echo chamber? 

Number One Investment Idea For 2023

Please see Here's My Number One Investment Idea For 2023 for a discussion of echo chambers.

More By This Author:

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