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January 23, 2020 | Misunderstanding the Supply of Bitcoin and Gold Leads to Silly Projections

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Here’s a hoot: Bitcoin is allegedly on track to hit $100,000 by 2021.

Bitcoin Q&A

Q: Where will Bitcoin be in 2021?

A: I don’t know, nor does anyone else.

On Track? For What?

Please consider BTC on track for $100,000 in 2021 by William Suberg.

Stock-to-Flow measures the Bitcoin price using two factors: the stock — the number of Bitcoins in circulation — and the flow, which is the number of new Bitcoins entering circulation.

Bitcoin’s low emission rate relative to its existing supply — like gold — means Stock-to-Flow constitutes useful evidence in the argument that Bitcoin is “digital gold.”

As Cointelegraph previously reported, Stock-to-Flow’s creator, the analyst known as PlanB, originally suggested that Bitcoin would hover at an average of in the year before its block reward halving in May 2020.

Amusing Projections

I am amused by projections of $100,000 targets when previous targets were $1,000,000 or higher by 2020.

At least the projections are headed in the right direction.

But that is not the focus of this post. Rather, the author does not understand the true supply of Bitcoin.

Supply of Bitcoin and Gold

Interestingly, the supply of Bitcoin and Gold have one thing in common.

Contrary to popular misconception, the supply of Bitcoin rises every day.

Similarly, the supply of gold rises every day.

Suberg confuses the rate of increase in supply with supply.

Supply Facts

  • Bitcoin is not used up, except for lost wallets and passwords, etc.
  • Neither is gold used up except for a tiny percent of industrial use.

Similarly, every Bitcoin ever mined, except for lost Bitcoins, etc, is the supply of Bitcoin.

Peter Schiff provides an amusing example of lost Bitcoin.

Peter Schiff Bitcoin

I wonder what someone who believes Bitcoin is headed to zero is doing holding Bitcoin in the first place.

That said, I find it conceivable as some sort of hedge or lottery ticket. I might buy a couple of Bitcoins as a lottery ticket at some point in the future.

Amusingly, Bitcoin Jesus once gave me 1/100th of a Bitcoin back when it was worth 30 cents or so and I have no idea where it is. I certainly don’t blame Bitcoin Jesus or Bitcoin for my loss of the key.

Loss of keys is a side issue. Supply analysis is the real issue and point of this post.

Bad Analysis and Poor Projections

The true supply of Bitcoin is every Bitcoin ever mined, barring accidents like Schiff’s.

If there were no Bitcoins mined starting tomorrow, the supply of Bitcoin would not change. It would be constant from here on out.

The same is true for gold and for that matter every asset in general.

Someone MUST hold every stock, every bond, every dollar, every ounce of gold, and every Bitcoin ever mined, 100% of the time.

Supply of Bitcoin and Gold Constantly Rising

Unlike bonds which can mature and shares that can be repurchased by corporations, the supply of Bitcoin and Gold is constantly rising, albeit at a decreasing rate.

It is absurd to project the future price of Bitcoin or Gold based on a fundamental misunderstanding of supply.

Every day, holders Bitcoin and gold holders have to decide whether to hold or sell. That is the supply.

Moreover, the supply of Bitcoin is much more liquid than the supply gold. No one holds Bitcoin around their necks as jewelry.

Bitcoin Supporters Cannot Answer One Simple Question

I still await a reasonable answer to Bitcoin Supporters Cannot Answer One Simple Question

What would happen to the price of Bitcoin if the US did not allow merchants and banks to make Bitcoin transactions?

That’s a very simple question that I have been asking for months. My reason for asking is based on a simple premise: If central banks or governments are ever threatened by Bitcoin, they will destroy it.

What If?

The best answer to date is along the lines of what if the sun explodes.

For example, one person asked “What is stopping the EU, US or China from immediately taxing all blog revenues at 30%, 40%, 70%?

Yes, I posed a hypothetical, but it is not an unrealistic one. Central bankers are very concerned about Bitcoin. They are not concerned about any other asset class, at least at the moment. Central banks are certainly not concerned about blog revenues.

While one can pose all sorts of “what if” questions, some are reasonable, others are not.

It is naive to believe Central Banks cannot squash Bitcoin if they want to. Whether or not they will want to depends on how high the price of Bitcoin rises.

Supply Side Analysis

I am not going to convince any true Bitcoin believers based on “what if” issues.

Heck, I am unlikely to convince anyone of anything at anytime at all.

Regardless, the main point of this article is a 100% mathematical certainty: The supply of Bitcoin, ignoring accidental losses like Peter Schiff’s, is constantly rising.

Misconceptions Abound

Analysis based on alleged falling supply is fatally flawed.

Misconceptions about in gold as well, in supply analysis and as related to the dollar.

In contrast to widespread belief, Since 2015, Gold Surprisingly Correlated With the US Dollar

Mike “Mish” Shedlock

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January 23rd, 2020

Posted In: Mish Talk

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