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Price matters

With the daily total volume on the Bitcoin SV network reaching over 50% of the total number of transactions of all other blockchains – there are thousands of them – combined, but BSV price showing no response, suppressed below 0.1% of the total crypto market cap, it is natural to ask the question below:

Can the utility level of Bitcoin (BSV) go through the roof, but the bitcoin (BSV) price never go up?

A simple answer is no.

However, for the utility/price dynamic to have a clear effect in the market, wait for another 100x increase in the BSV transactions.

This is because the crypto market is not moving based on any real utility data, let alone any economic fundamentals. So far, everything is pure speculation driven by social media.

But that does not mean that utility and economic fundamentals will never matter. They don’t matter now, simply because they are still too small to matter. Even with BSV, the total mining revenue generated by transaction fees is still tiny, with a fee/subsidy ratio of around 0.25/100.

But if the number of transactions increases by another 100x, it will be close to 25/100, creating a kind of profit surplus that is hard for Bitcoin miners to ignore.

In the even longer term, if the number of transactions increases by 1000x, and even if the fee per transaction is further reduced by 5x, the fee/subsidy ratio would be around 50/100, creating a kind of profit surplus that is impossible to be ignored by the bitcoin miners.

Once the miners move, hashing power shifts, and the coin prices also move. It’s hard economics. See the Economics of Bitcoin Mining.

Beyond the mining power shift, there is a further factor that affects the asset price: when the actual asset utility demand rises to a certain level, it will also directly drive the asset price up.

Coin price is not an ultimate purpose.

At the same time, before we talk about the coin price, we must have a proper framework for understanding the purpose of the real Bitcoin. The purpose is a real utility that benefits people worldwide. Both the Bitcoin blockchain and the bitcoins are technological tools for attaining that goal, not the goal in themselves.

Those whose goal is getting rich by holding some coins regardless of what real value these coins bring to the world probably don’t have the patience for BSV.

The real Bitcoin (BSV) is a value-creation economy, not a value-extraction one like most cryptos, including BTC.

One should also realize another fact: Businesses that are developing products and services using BSV actually benefit from a low coin price, not a high one.

The reason is very simple: for these businesses and their customers, coin price is a cost, not a profit or benefit.

Other than the miners, BSV businesses are not in the business of producing bitcoin. They produce products and services such as micropayment and tokenization using the BSV infrastructure and technology.

In other words, bitcoin is not a product. It is a tool, along with the underlying blockchain.

Those who are serious about the Bitcoin blockchain’s utility do not focus on pumping the coin price.

If the coin price keeps rising, it can reach a point where it could be viewed as a detriment to the transaction utility because it starts to have a negative impact on the transaction cost. Where this threshold is found depends on the scalability of the blockchain and the type of transactions. For a nonscalable blockchain like BTC, because the fee can easily reach $10/tx due to the limited bandwidth of transaction processing, the blockchain has long become impractical for processing even small transactions under $100, let alone microtransactions under one cent (L2 is a different matter). BSV can do much better due to its scalability. But even with unbounded scalability, there is an upper limit beyond which the coin price will start to have an impact on the transaction cost. It is estimated that, when BSV price reaches $10,000/bitcoin, it will start to affect micropayments under $0.01/tx (because even with 1-sat/tx, the fee will be above $0.0001, which is substantial for micropayments). When the price reaches $1 million/bitcoin, transactions under $1 will be affected, and so on. See Extreme stress tests of Bitcoin scalability. And that’s why some in the BSV space even go so far as saying that they don’t want to see the price go up beyond a certain threshold level.

However, the price is going to be determined by the market, not by anyone’s wish or desire. The price can go up even if most BSV businesses and BSV users wish it to be low, or it can go down even if all holders of the coin focus their daily energy wishing ‘the number go up’.

Factors that affect the price

It is axiomatic to say that the price is determined by supply and demand. With an asset that has a fixed supply (21 million BSV coins or 2.1 quadrillion satoshis), the question is, what exactly drives the demand?

There are two dimensions that drive the demand, and each dimension has multiple factors.

The first dimension is the utility or usefulness of the asset, while the second is the information related to the asset. These are separate dimensions, interactive but not codependent.

We discuss them separately below.

The utility that affects the price

Viewed subjectively in the market, BSV has three different types of utility, namely:

(1) a store of value

(2) a medium of exchange

(3) a digital realty (‘land’)

Any one or a combination of the above three could serve as a reason for someone to buy BSV.

The first two, store of value and medium of exchange, find their analogies in traditional assets such as gold, but the third one, digital realty, is unique to BSV.

When viewed as something that can preserve value, BSV is a store of value. When serving as a currency for payment, BSV is a medium of exchange.

But with the tokenization development in the BSV ecosystem, BSV also serves as “digital land” on which digital “buildings” can be constructed (See Bitcoin SV is “land”​ on which economies are being built). In doing this, BSV is a digital ‘realty’.

The market may demand any of the above three utilities, as any one or a combination of them could serve as a reason for someone to buy BSV. With reasonable liquidity, however, an asset like BSV will have only one price even though it has different types of demands. The actual price will be determined by the collective result of the three demands.

At the present time, although BSV is designed for, and also capable of, large-scale utilities, the actual usage is still very low. As a result, it is subject to total speculations and manipulations.

That’s why focusing on building is the only meaningful thing to do.

Information that affects the price

For each of the above three types of utility, there are multiple levels of information at play to affect the demand:

Level 1 – Pure speculation driven. This is low-info speculation at the most superficial level. When the market has no fundamentals to act upon as a guide, prices are the result of pure speculation, and anything goes. There is no rational reason for any price point. The crypto market is presently almost entirely at such a superficial level. It is completely a popularity-voting arena controlled by narratives and rumors. The price is completely detached from the value. A higher price does not mean an asset is more valuable, and vice versa. There is no truth in such a market condition.

However, such a condition is not permanent. Once some of the assets start to develop objective fundamentals, such assets will emerge from the superficial level and start to tell some truth. See below.

Level 2 – Factual utility information driven. A market with a bit of intelligence may react to factual utility information, such as actual transaction volume, transaction price, and overall scalability reports. Such a reaction would still be speculation because it is not based on fundamentals nor driven by real economic forces. But at least it is utility fact-based and therefore is more intelligent. Depending on the strength of the information, and the media power supporting it, it may break out from the pure low-info speculations, but there is no guarantee. For example, BSV currently has very impressive utility performance, but the market is so delusional that it is almost completely oblivious to such facts.

Level 3 – Economic forces driven. This comes from the actual participants of the economy behind an asset. For example, miners are mostly driven by real economics rather than by narratives. They will move to a different blockchain that has better economics if it offers irresistibly higher profitability. Once that happens, the blockchain that has better mining economics will attract more mining power to migrate over. And this will inevitably drive the asset price up on the destination blockchain. This is hard and objective economics, not at the whim of market speculations. If anything, it will change the direction of the speculations. For more details on the conditions under which such migration may become inevitable, see the Economics of Bitcoin Mining.

Level 4 – Actual asset utility demand driven. This is the act of a true intelligent market that tells the truth in the price information, the all-important economic information of the market. This happens when users (individuals or companies) start to buy an asset not because they speculate a future higher price of the asset, but straightly because they need them for an actual utility at the moment. For example, when an application uses BSV as an actual payment medium or an application uses BSV as a carrier of data or tokenization, etc., users will need to acquire BSV coins. This kind of demand is inelastic in nature, meaning that the demand is not price-induced, and users need to purchase a certain amount of the asset regardless of the price (usually within a certain range of course). This kind of inelastic demand, when large enough to create pressure on the existing supply, always drives up the price, and is therefore a much stronger force than speculations.

For an asset like BSV that is hated and biased against by the public narratives, there may be zero hope in the above level 1, and only a little bit of hope in the above level 2. But because it is growing rapidly in transactions, it is the most hopeful in the above level 3 and level 4 factors that drive the price.

The good news is that the above level 3 and level 4 factors (namely economic forces and actual utility demand), once they occur at an appreciable level, would be real and unstoppable. With that, the asset will objectively break through all other adversarial market conditions, even the weightiest biases against it.

The various scenarios for the above level 3 factor – economic forces-driven conditions – can be found in the Economics of Bitcoin Mining. Overall, in the case of BSV, if the transaction volume increases to a level that the miners will feel its real economic effect, the coin price will have to move due to the mining power shifting. This will be the case even if the overall public opinion about BSV remains negative. But if the public opinion also shifts to become positive, the above level 1 and level 2 will also come into play, and the price effect will be multiplied.

Whether the level 3 factor will materialize with BSV depends on the actual transaction volume growth on the chain. Based on the growth track of BSV, the timeframe for the transaction growth to be manifested in price actions is not immediate but is not far away either. It will depend on real adoption, not theories.

The above level 4 factor – actual asset utility demand-driven condition, might take longer to materialize. See below for a scenario analysis.

A scenario analysis

Scenario assumption: Average 1 million transactions per second (i.e., average TPS 1 million); average transaction fee 100 sats.

Because every bitcoin contains 100 million sats, we need 1 bitcoin per second (1 million x 100 sats /100 million sats per coin) to transmit the 1 million transactions per second.

1 bitcoin per second is equivalent to 86,400 bitcoins per day.

Because there are only 21 million bitcoins altogether, it means a total turnover of the entire 21 million bitcoins in about 240 days.

Now, a 240-day turnover speed means a Bitcoin economy with a money velocity of 1.5 annually (365 days/240 days). This would be comparable to the money velocity of a traditional economy, which typically ranges from 1 to 2. At this level, Bitcoin would start to feel demand pressure from pure payment circulation alone, excluding all other uses.

However, with the tokenization development in the BSV ecosystem, BSV is not only serving as a currency for payment but also serves as “digital land” on which digital “buildings” will be constructed (See Bitcoin SV is “land”​ on which economies are being built). The satoshis used this way are not circulated quickly.

The average turnover time for land is once many decades, not several times a year. Satoshis used as ‘digital land’ may have a faster turnover than the physical land, but will still be more likely years rather than months or days.

In this respect, the demand pressure for BSV will be tremendous when the transaction volume reaches 1 million per second, but it is likely to be felt long before that.

Even just the currency part, the actual velocity in the above scenario would need to be much higher than 1.5 annually, because the above estimate assumes that all 21 million bitcoins are available for real utility transactions (i.e., nontrade transactions). That would be 100% utility, zero trade, and zero holdings. This is an extremely conservative estimate, considering that the current top cryptos such as BTC and Ethereum are almost the opposite, close to 0% utility, 20% trading, and 80% hodling. Therefore, the real velocity of BSV in the above scenario is likely to be multiple times 1.5, easily above 10, much greater than the money velocity of a traditional economy which typically ranges from 1 to 2.

High velocity means high demand exerting pressure on the available supply, pushing the asset price up.

In reality, BSV price in the above scenario would have already been pushed up by the above level 3 factor (economic forces) alone, well before the TPS reaches 1 million to activate the level 4 factor.

Therefore, it seems impossible for BSV to reach TPS 1 million without causing major price shifts.

The above conclusion does not change even if (but unlikely) the market sentiment would somehow manage to remain averse to BSV in the face of such disruptive adoption, because the real utility needs and the demand they create do not depend on sentiments. Besides, the level 3 hard economic forces that drive the miners will have started to drive the price long before TPS reaches 1 million.

On the other hand, it is quite safe to say that the above level 4 factor is not going to have visible effects before the average TPS reaches at least 10,000.

But as discussed above, the level 3 factor is likely to cause visible price actions much earlier, perhaps at TPS 1000, which is about 50 times from now, and reachable in a not-too-distant future (see above).

Given the fact that the current sustained average TPS on BSV is around 20 only, it is no wonder why BSV price does not reflect the transaction volume growth, yet.

Of course, whether the above level 1 and level 2 factors start to pick up the signals from the level 3 and level 4 factors before these factors themselves start to have a direct effect, is a different matter.

Regardless, the price mechanism driven by actual asset utility demand provides a bottom-line scenario. It assures that actual utility growth is bound to drive up the asset price, ruling out a scenario where the utility level continuously goes through the roof while the coin price never goes up.

Price matters

Price does matter, but only to the extent that it affects the economics.

This may sound harsh, but the sentiment of BSV coin holders has virtually no impact on BSV economics.

Only that of users, developers, miners, entrepreneurs, and venture investors does.

At the present stage, the effect of the price on BSV economics is seemingly paradoxical: on the one hand, a lower BSV price benefits user adoption (because it makes transactions cheaper); on the other hand, a higher BSV price makes the developers and miners happier. But in terms of real economics, the two sides are not contradictory because the developers and miners also directly benefit from higher transaction volumes. Ultimately, their business is not in the coin itself but in the blockchain utility.

The success of the BSV ecosystem needs both the users and developers. In the long term, the market will find a sweet spot. If it can’t, some external nudging might be needed. But if nothing works, the ecosystem fails.

This of course does not mean that developers and miners will try to drive the BSV price lower.

Price is emergent, not fundamental.

In other words, price will emerge from the economic dynamics as a result of it, not as a fundamental goal or fundamental driving force for it. Pursuing a higher price does not lead to a higher price. Pursuing better economics ultimately does because it enhances the asset value.”

Therefore, do not follow shallow narratives. Follow the economics.

The benefit of sound economics

The entire crypto market as it stands now focuses on momentary prices only. This is the biggest distraction from the real development of blockchain, DLT, and Web3.

Price matters, ultimately. But Bitcoin SV developers, supporters, and investors should focus on applications and utilization, not the short-term coin price, and consider everything within a framework of sound economics.

Bitcoin SV (BSV) the original Bitcoin is the only blockchain that has sound economics both from the ground up and long-term with unhindered parallelization, unbounded scalability, and uncorrupted competition.

The benefit of sound economics is that utilization eventually and automatically solves all other problems, including the coin price. The solution is long-term and sustainable.

Not when economics is wrong. With wrong economics, you could have all kinds of short-term irrational market reactions, but nothing sustains in the long term.

Disclaimer/Disclosure: Like everything expressed on this website, this is absolutely not financial advice. I am not a financial advisor. I only write to express my own understanding of the technology, the economics, the law, the business, and the related systems, mostly from a technical standpoint, and all for education only, not for financial advice. With regard to Bitcoin SV (BSV) specifically, I am a supporter of Bitcoin Satoshi Vision and believe it is the truthful and original Bitcoin. I am also a user and holder of BSV bitcoins. Therefore, consider either I have put money where my mouth is, or that my views are biased – it is up to you the reader, but I take no responsibility for your own decisions.