Most mined coins never hit the open market. Many miners are only recouping equipment and electricity costs and holding the rest.
This is not an explanation; bitcoins are fungible. Everything except transaction volume would look identical if all the miners sold off every coin they made and instead a different group bought up all those coins; you need to explain why there are so many people willing to hold bitcoins. Whether those people going long on Bitcoin happen to have mining rigs or not is irrelevant.
Gresham’s law is for when people are required to accept the ‘bad’ and ‘good’ money equally; then people will hoard the good money and transact exclusively in bad. When the coercive requirement is not satisfied, one ought to expect good money to drive out bad, or else they will float related to the risk, ease of acquiring it, etc. See http://en.wikipedia.org/wiki/Gresham%27s_law#Reverse_of_Gresham.27s_Law_.28Thiers.27_Law.29
(And if people are worried about the euro, they can hold other currencies like the deflating yen; if they are worried about dollars, they can hold euros etc)
Not the right term for what’s happening. Deflationary spiral refers to low demand reducing prices, which reduces production, which reduces the employment rate/average wage, which reduces demand. The bitcoin economy is not large enough for this to be the case. Rather, it appears to be a speculative bubble, where people predict the price will go up, so more people buy it, and so the price goes up, etc. Then enough people at once go “this is as far as the train’s going” and everybody panics and tries to sell and the price crashes.
Since bitcoin is a currency experiencing deflation due to a cyclic process, “deflationary spiral” would sort of make sense if it didn’t already refer to another specific phenomenon.
My fellow Americans. As a young boy, I dreamed of being a baseball. But tonight I say, we must move forward, not backward; upward, not forward; and always twirling, twirling, twirling towards freedom!
Most mined coins never hit the open market. Many miners are only recouping equipment and electricity costs and holding the rest.
The market is still very thin, though thickening a bit in the last couple weeks.
This is not an explanation; bitcoins are fungible. Everything except transaction volume would look identical if all the miners sold off every coin they made and instead a different group bought up all those coins; you need to explain why there are so many people willing to hold bitcoins. Whether those people going long on Bitcoin happen to have mining rigs or not is irrelevant.
Gresham etc. If you could magically email gold securely tomorrow I would expect a frenzy of buying that as well.
Gresham’s law is for when people are required to accept the ‘bad’ and ‘good’ money equally; then people will hoard the good money and transact exclusively in bad. When the coercive requirement is not satisfied, one ought to expect good money to drive out bad, or else they will float related to the risk, ease of acquiring it, etc. See http://en.wikipedia.org/wiki/Gresham%27s_law#Reverse_of_Gresham.27s_Law_.28Thiers.27_Law.29
(And if people are worried about the euro, they can hold other currencies like the deflating yen; if they are worried about dollars, they can hold euros etc)
Looks like a deflationary spiral
Not the right term for what’s happening. Deflationary spiral refers to low demand reducing prices, which reduces production, which reduces the employment rate/average wage, which reduces demand. The bitcoin economy is not large enough for this to be the case. Rather, it appears to be a speculative bubble, where people predict the price will go up, so more people buy it, and so the price goes up, etc. Then enough people at once go “this is as far as the train’s going” and everybody panics and tries to sell and the price crashes.
Since bitcoin is a currency experiencing deflation due to a cyclic process, “deflationary spiral” would sort of make sense if it didn’t already refer to another specific phenomenon.