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Lost in Translation: A Bitcoin Economics Puzzle

What is interesting with bitcoin, however, is it has a very low market cap. Unlike gold or the S&P 500, where the ETF is/was rather small compared to the market cap of the market (although I did read where GLD holds more physical gold than the reserves of Russia, Switzerland or Japan), the potential here is for the ratio to be much larger and thus more impactful.

The market cap of bitcoin is about 7 billion right now. Say someone is mildly intrigued yet doesn't want to hassle with setting up new accounts. That person might just dip a toe in it via the ETF. Demand could surprise.

What if the prospective ETF grows to, say, 500 million? That is very meaningful versus today's market cap level -- particularly considering bitcoin operates in a thin and disjointed, not to mention unregulated, market.

So the demand curve for bitcoin would shift right and the price would go up. But this is where it gets really interesting to think about.

Normally, a supply curve is upward sloping from left to right due to increasing marginal cost of production in a world with finite resources. But is this so with a virtual good? The marginal cost of producing another bitcoin is quite low (zero?) once you have the fixed cost of the supercomputer and the algorithm figured out. The only reason there is scarcity at all is because there is an arbitrarily agreed upon cap in created supply.

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Does this not look like market manipulation to anyone? In the real world, there are production limiters that cap out supply (cost of drilling, risk of investing money and getting stuck with inventory, amount the market will finance growth, availability of inputs, etc.). But with bitcoin, it is an agreement (collusive?) that caps out supply, not any real world supply chain issue.

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