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.
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