But “demand” for bitcoin is not the same as bitcoin adoption. Bitcoins are neither created nor destroyed when (for example) a merchant accepts bitcoins in a transaction. Similarly, demand for dollars is not a function of how many people are willing to use dollars in their transactions, but rather how many people want to hold dollars (and at what liquidity price). I agree that increased demand for bitcoin (relative to supply) will increase the price, I just don’t see why that relative demand has to increase if bitcoin catches on as a medium of exchange. For example, suppose bitcoin neither ‘dies’ nor expands, but stays at its current level. In that case, we’d expect the price of bitcoins to fall over time, as more bitcoins are created but demand does not increase.
Good catch. But doesn’t this re-inforce my point that the cost of mining bitcoins will cap, rather than set, the price?
You are correct. There can be an increasing number of transactions per unit time, but whether those transactions are in microbitcoins or megabitcoins is orthogonal.
But “demand” for bitcoin is not the same as bitcoin adoption. Bitcoins are neither created nor destroyed when (for example) a merchant accepts bitcoins in a transaction. Similarly, demand for dollars is not a function of how many people are willing to use dollars in their transactions, but rather how many people want to hold dollars (and at what liquidity price). I agree that increased demand for bitcoin (relative to supply) will increase the price, I just don’t see why that relative demand has to increase if bitcoin catches on as a medium of exchange. For example, suppose bitcoin neither ‘dies’ nor expands, but stays at its current level. In that case, we’d expect the price of bitcoins to fall over time, as more bitcoins are created but demand does not increase.
Good catch. But doesn’t this re-inforce my point that the cost of mining bitcoins will cap, rather than set, the price?
You are correct. There can be an increasing number of transactions per unit time, but whether those transactions are in microbitcoins or megabitcoins is orthogonal.