Mt Gox Bitcoins hit Prices

With 1,800 bitcoins mined daily, lets look at the economic impacts of releasing 200,000 Mt Gox Bitcoins.

Economics comes down to supply and demand. With Bitcoin it is real easy to look at supply, everyone knows the limited production of new bitcoins. Bitcoin has been in high demand for the last several years, which has pushed Bitcoin prices up to $20,000. Now they are falling. Why? Well, it could be the temporary addition of supply.

After the Mt. Gox investigation got underway 200,000 bitcoins were found, and the court recently permitted a sale of some of these coins. Eventually, they are likely to be sold. When and how, I don't have much information on but reports are the trustee liquidated about 36,000 BTC on March 7. More will be coming.

Economics is a inexact science because economists can't test things in a test tube the way other scientists can. Economists cannot control people into control groups then change things. The result is the economists typically have to use careful observation to gather data, and crunch the numbers. If you want to know what would happen to disk drive prices if you destroyed all the disk drive factories, you can't go destroy the factories. But you can look at the effect if a flood destroys them for you. The same is done in America. You may not be able to change a law, and see it effect, but you can observe what happens between two similar border towns located in different states when one state changes a law. Cryptocurrencies are new and bitcoin has been providing some interesting observational and test data. This makes bitcoin a new and interesting example -a case study of supply and demand.

When bitcoin mining rewards went from 25 coins per block to 12.5 coins per block, prices increased. Looking April /May 2016 prices were near $420 compared to August and September 2016 where prices were at $600 a coin. It was interesting to see that with a 50% reduction in supply, demand was strong and prices went up 50%. I previously looked at BitConnect. When the Ponzi scheme failed, fewer new people were buying bitcoin (I estimated about 7%). Prices tumbled after that. How much effect BitConnect was, is certainly debatable.

So lets look at current supply. With 12.5 coins every 10 minutes that is 1,800 new bitcoins per day. When a trustee sells 36,000 bitcoins that is 20 days with of production. All told the 200,000 bitcoins represent 111 days of production.

One could also think of an additional 20 days of production as doubling production for 40 days.

If we think about cars for a moment. If a car company suddenly sold 111 days of production. That is 1/3 of an entire years production of cars on the market, new car prices would tumble. It is not surprising to see Bitcoin prices tumble then. In fact, it is quite possible that bitcoin prices will be down as people anticipate the additional supplies hitting the market. Plus current miners still need to sell current production.

People can shout manipulation, wall street, FUD, whales or other things. There are other people -like Satoshi- that have lots of bitcoins (estimated at 1,000,000 BTC). Normally, economists do not have a clear view of what is happening in accounts. Here they do. It provides a unique insight into what is happening. Yes, With Mt. Gox Bitcoins hitting the market, supply is up. It is a buying opportunity. These coins will eventually be distributed. New coins are also coming on the market, EOS, Ethereum. I suspect these alternative coins will lessen bitcoins influence; but bitcoin is still the reserve currency.

Economics is not an exact science. We know that demand is strong for bitcoin, but prices are highly volatile. This has a lot of do with speculation and trading. When Bitcoin supply was cut in half (block rewards from 25 to 12.5) prices in July 2016 prices went up. Long term prices will likely recover. Supply is limited. Eventually, I think other coins are going to overtake bitcoin in predominance, but we can let the coins battle that out in the free market.

As the Chinese proverb says... "May you live in interesting times..."