The Economics of the Bitcoin Cycles
Updated
This is a continuation of the chart shared which helped be nail the absoloute bottom in 2018 please review the original chart and commentary for further explaination.
As a recap, as Satoshi said himself rightly pointed out that commodity costs are likely to gravitate to production cost.. why? Because miners will sell into demand where revenue per unit > cost per unit. Likewise, collectively they are disincentivized to sell when revenue < cost.
So what happened in 2018
- Sell off to Marginal Cost
- Race to the bottom of most efficient miner
- Eliminate Inefficent competion
- Utilize futures to lock in profit
Where did that leave us
- Inefficient miners eliminated
- Disincentive to Sell
- Incentivised to limit output sale
- Push price to 2x production pre halving
- Simple to do due to huge short interest
- Disincentive to sell below new production cost
- New bottom 2x old bottom
Whats likely to happen next
Action most likely from miners:
- Sell production / Hedge down while existing MC is still low
- Limit selling pre halving to envoke new halving bubble back to current prices
- Limit sale of production
- Maximise revenue per unit
- Sell new bubble
This ofcorse is a theory but this theory did exactly what it said on the tin last year. We have also seen the pre halving hype bottom out at 2x the cycle bottom.
As a recap, as Satoshi said himself rightly pointed out that commodity costs are likely to gravitate to production cost.. why? Because miners will sell into demand where revenue per unit > cost per unit. Likewise, collectively they are disincentivized to sell when revenue < cost.
So what happened in 2018
- Sell off to Marginal Cost
- Race to the bottom of most efficient miner
- Eliminate Inefficent competion
- Utilize futures to lock in profit
Where did that leave us
- Inefficient miners eliminated
- Disincentive to Sell
- Incentivised to limit output sale
- Push price to 2x production pre halving
- Simple to do due to huge short interest
- Disincentive to sell below new production cost
- New bottom 2x old bottom
Whats likely to happen next
Action most likely from miners:
- Sell production / Hedge down while existing MC is still low
- Limit selling pre halving to envoke new halving bubble back to current prices
- Limit sale of production
- Maximise revenue per unit
- Sell new bubble
This ofcorse is a theory but this theory did exactly what it said on the tin last year. We have also seen the pre halving hype bottom out at 2x the cycle bottom.
Note
ps follow on twitter as per my bio, same handle for more.Note
Note
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