I think the idea is that production has a real world cost (hardware, power, and space), and those costs determine the price (eventually)
Miners engaged in mining before I arrived would have the same costs they had before, but now with fewer BTC to cover them, this would force them to sell at a higher price or operate at a loss until they drown the competition.
There are two ways to look at it.
Nope.
Miners have costs to cover, mining unprofitably and holding makes no sense whatsoever (you're literally better off turning off your rig, buying on the market and holding at that point)
You're better off buying them from others at that point.
My dreams of being a millionaire are forcing me to sell this orange for a million dollars. Ergo, oranges will now retail for a million dollars.
Bitcoin production is perfectly inelastic, and Bitcoin itself has no consumption value. You need a different analogy.
If there were only 12 oranges produced on all the trees in the world every hour & it cost $500 an hour to operate your orange farm. You therefore have to sell your oranges for at least $42 to cover costs and make a small income
However now there are only 6 oranges produced every hour (not 12), what can you do to maintain profitability?
First of all, you regularly consume items where the price is determined by demand, not production cost. Cars, housing, and premium products regularly sell for multiples of what they cost to produce.
Secondly, just because something’s expensive to produce doesn’t mean that it’s valuable to anyone else. This is a common problem in customized products, but also happens when market demand either fails to materialize or collapses. Your ultra premium buggy whip might be incredibly expensive to produce, but if nobody wants buggy whips you can’t sell it high enough to make a profit.
many multiples! this is incorrect. the luxury versions of those products you listed certainly have higher margins, but id be surpised if you could find anything with 100% proft margin, much less 3x and beyond.
Price is a function of supply and demand and because most markets are fairly competitive, the market-clearing price can be predicted roughly from the cost of production.
'Cars' do not sell at multiples they cost to produce, once you factor in all of the overhead of sales and distribution, margins are fairly thin. Those are 'real costs'.
Almost every single good ever produced is commoditized on some level, and therefore market prices are predictable from the cost of production.
BTC is no exception: if it costs $1 to make $2 in BTC, you can be sure a lot of people will be 'making' BTC until the cost of making BTC and it's market value start to merge.
The remaining demand for BTC ... given the fact it has no use, it's not a currency or a generally accepted store of value ... is speculative in the purest sense. It's whatever a bunch of dudes holding it want to buy and sell them as. Like baseball cards.
Bitcoin is weird though because no matter how many miners there are, it's still minted at the same rate globally. If it cost a miner $1 to make $2 in Bitcoin, what would not happen is new miners joining and flooding the market with more Bitcoins until the price of Bitcoin falls. Instead, new miners would keep joining and the miners would be cutting into each other's profits until it cost them all approximately $2 to make $2 in Bitcoin.
But that's not really the point.
Let me put it differently: if it costs $1 to mine $1000 worth of BTC ... then, new miners will flood the market until the cost of mining reaches parity with price. This is not a BTC specific or controversial statement here.
I think this is what you meant, but just to clarify: the cost of mining will go up, not the cost of Bitcoin. (Miners joining or leaving shouldn't directly affect the price of Bitcoin. The same number of Bitcoins exist and get minted regardless of the number or activity of miners, as long as it's nonzero anyway, so miner activity doesn't directly affect the supply and demand of Bitcoin.)
What’s interesting is that you reinforced my point at the very end. Baseball cards are a fantastic example of a product that’s sold in a way that’s completely disassociated from the cost of production.
Mining is public evidence that someone is willing to burn $X in electricity to acquire a Bitcoin. For an intrinsically worthless monetary asset with no government support, social proof is the only real source of data on possible valuations. See also: Mises’ regression theorem.
(Or we are both wrong)
They can be mined at a loss temporarily, in order to drive out competition, but at some point, a miner operating at a loss will go bankrupt. This is no different from the oil industry, where capital outlays so high that most players continue to produce at a loss, temporarily. But long-term, the price must at least match costs of production.
Bitcoin is minted at a predefined global rate; the amount minted doesn't depend on the number of miners. Miners compete with each other for a share of the predefined minting action, so some dropping out does not decrease the minting rate of Bitcoin, but instead makes it more profitable for the remaining miners.
Remember, production is built right into the protocol. 10 miners could keep the network going at the same pace.
A network with only 10 miners could easily be attacked with minimal effort. The only thing stopping the attacker would be the fact that it's a waste of time, because a cryptocurrency with only 10 miners is worthless.
Wiping out too many miners at once is dangerous business.
Edit: it’s literally the second sentence in the Wikipedia article:
> LTV is usually associated with Marxian economics
The irony is in a Bitcoin investor and Marxists sharing some economic common ground for their beliefs, since otherwise those groups rarely have much in common.
There's a Reddit comment here[0] with links to them, but it's up to you to decide if they're worthwhile or not. I have some doubts, but I would not go as far as to throw the word "discredited" in so casually. The comment also includes links to research against the "LTV".
[0] https://www.reddit.com/r/badeconomics/comments/fht0ti/marxs_...
It's fairly trivial to reason from any given intrinsic value theory to absurdities, this is basically the foundation of marginalism and the last 150-odd years of economics.
The fact that products have prices is an empirical fact; Marx's argument is that this fact is only one premise in his 'proof' (using the term loosely) of the "LTV". According to Marx, a good does not have "intrinsic value" any more than it has "intrinsic price". We still say that price determines what goods sell for (even if that sounds tautological).
It's exactly that products do not have prices that is the problem. The apparent 'price' of a product is an epiphenomenon of a particular market, a side effect of the unequal subjective values of the participants (and it's trivial to observe that these clearing prices are determined at the margin, not on average, which makes aggregate LTV even wronger than the regular kind)
In a well-functioning market all products have clearing prices that are easily measured and compared to one another, but this is a mirage that requires constant arbitrage to maintain. The slightest change in unrelated market conditions turns dirt into ore or crude oil into toxic waste, with no objective change in the material itself, only changes in the subjective needs of the participants.
Given this feedback loop, how do you establish what's the proper equilibrium? What's the total amount of hardware bitcoin is supposed to stabilize on? As a thought experiment, if BTC stabilizes at $30k, that means that the total value of all bitcoins will be about half a trillion dollars. How can that work if Bitcoin becomes the new dollar? Clearly the entire world ecomony is more than that.
Normally I'd assume that I'm missing something and the people who came up with that model know more than I do, but then again we're talking about cryptocurrencies so...
If the price were somehow fixed at $1000, the difficulty would eventually be adjusted so that miners would barely break even.
Same if the price were somehow fixed at $100,000.
If people overall wanted to purchase enough Bitcoin to have more than half a trillion dollars in Bitcoin, then demand would outpace the supply and the price of Bitcoin would go up, making it possible to have whatever amount of value in Bitcoin. It's nonsense to presuppose the price of Bitcoin staying still while demand outpaces the supply. No one sets the price of Bitcoin but supply and demand.