"The price of any commodity tends to gravitate toward the production cost. If the price is below cost, then production slows down. If the price is above cost, profit can be made by generating and selling more. At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price." - Satoshi Nakamoto
There are some beginners in the Bitcoin community confused about why the halving would increase the value of coins. This Satoshi quote sums it up perfectly. As the network power grows, the halving will result in more expensive coins through the natural dynamics of the market to compensate miners for their increased costs. If not, miners will drop out of the race, the difficulty will drop and coins will become easier to mine. Bitcoin is a self-balancing system, the fact that the halving is on the horizon is testament to a healthy and expanding network.
And why do we see pre-halving bubbles? In anticipation of future returns.
"A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases. In your head, you do a probability estimate balancing the odds that it keeps increasing." - Satoshi Nakamoto
As the halving approaches, the market participants start to realize that they can expect increased future returns. It is a wise move to leave the halving buying to the last minute provided you can get a cheap price, in order to minimize risk in the event of unforseen network circumstances. Naturally, as the price rises, FOMO kicks in, as those with more faith are willing to buy in earlier and cause an increase in price. This causes a run-away buying effect. The bubble results in the less-knowledgeable market participants concluding that either Bitcoin is worth more than it really is, or are unfamiliar with bubble dynamics and are not aware of the fact that all bubbles pop. Bitcoin may already be at its true-value peak at this point, but these less-knowledgeable participants cause an overshoot in the price, and as a result, an ensuing bubble-crash back to equilibrium after the fact.
The point is, bubbles are natural market movement and the halving is a better catalyst than any other.
Submitted May 31, 2016 at 01:40PM by blackbaronstux http://bit.ly/1qZjXYS
No comments :
Post a Comment