Dumping a fork coin doesn't crash its price \ stacker news ~bitcoin

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Dumping a fork coin doesn't crash its price

21.8k sats \ 61 comments \ @Scoresby 7h bitcoin

I have the sensation that I've not done a very good job explaining why you can't crash the price of a fork coin by dumping it.

Therefore, I've decided to provide for you the completely accurate and comprehensive transcript of a conversation I had with my cousin Mathilde (the one who speaks Latin and used to date a guy who worked at the NY Fed) that convinced me that no one has ever dumped a fork coin and crashed its price (and in which she beats the topic and me to death).

'Hey Mathilde, if there's a fork in Bitcoin, can I sell the coins on the side of the fork I don't like to crash the price so everybody thinks it's worthless?'

'Does everybody think it's worthless?'

'I don't know.'

'Then why would you think selling has any effect on the matter? If people want it, they'll buy it from you.'

'Well, but what about supply and demand...'

'Oh, do please tell me about supply and demand.'

'Isn't it like where if people want more eggs, then the price goes up because there are only so many eggs. But then as the price of eggs goes up, being a chicken farmer becomes more profitable and so more people start chicken farming and then there are more eggs available and in order to sell them the chicken farmers have to charge less so the price goes back down. And that's supply and demand.'

'That sounds reasonable enough. Maybe we should have you explain that to the Fed so they will let some other chicken farmers in on the dollar-printing business.'

'But doesn't the same thing happen when I sell the fork coin?'

'No. Does selling coins mean you've decided to become a chicken farmer and start creating more fork coins?'

'I mean: I'm adding coins to the market.'

'Let's do that cute little supply and demand story with bitcoin: if people want more bitcoins, then the price of bitcoins goes up, but if people want cheaper bitcoins they're kinda shit out of luck because there are only 21 million and you can't make more.¹ So the people who want more are going to just have to pay more to get the bitcoins. Trading can't make more bitcoins. You'd have to change the protocol to do that.'

'But isn't offering bitcoin for sale making additional supply available to the market when it otherwise wouldn't have been?'

'No, because you're not changing the supply of the coins, you're changing the number of coins people are willing to trade at this price level. If people want to buy them, they will. You don't change the supply any more than offering to sell coins at an obnoxiously high price would.'

'I don't follow.'

'Let's try an example. How many bitcoins do you have?'

'Nice try, Fed!'

'At least we're making some progress. Pretend you have 10 bitcoins. If you aren't willing to sell them, it means you value them more than whatever you can get for them right now.'

'Maybe I just don't want to sell them.'

'Don't tell me you've gotten into NFTs! What are they calling them now? Ordinals?'

'Of course not!'

'Then why are you acting like your bitcoins are NFTs? Of course you will trade them if somebody offers you enough. You aren't holding them because you like the numbers in the UTXOs, you're holding them because you want to be able to buy something with them or have the option to later and they give you that ability more than any other money.'

'I suppose so.'

'And if there is some price at which you will exchange your bitcoins, aren't they part of the supply available for trade?'

'Maybe...'

'And if your bitcoins are part of the supply available for trade even though you don't want to trade them at today's price, doesn't that mean everybody's bitcoins are part of the supply available to trade?'

'You lost me.'

'Let's try again: if I have 10 bitcoins and I suddenly offer to sell them at half the price most other people are asking, have I increased the supply?'

'Yes, that's what I'm saying.'

'And if instead I offer my 10 bitcoins for sale at a price that is double the price most other people are willing to pay, have I decreased the supply?'

'What?!? No.'

'Exactly. If you believe that offering something for sale at a low price increases supply, you probably also have to admit that offering it at a high price increases the supply. And that means supply is all the bitcoin that can be bid on, not just the number of sell orders you can find. Trading is just changing who has the keys, not how many coins can be bid on. All coins are always held by someone.'

'But doesn't my selling the coins low satisfy a buyer's demand that might otherwise have had to have been satisfied at a higher price?'

'Imagine if someone was willing to trade you 5 bitcoins for one of yours.'

'Why would they do that?'

'I don't know, maybe they're one of these Ordinal people you admire so much and they really want a transaction that includes one of your UTXOs. Doesn't matter why. Have we satisfied 5 bitcoins worth of demand that would have otherwise been out there like the little Engine that Could pushing the price up in the market?'

'I'm not sure.'

'It's a trade that "dumps" bitcoin at an absurdly low price -- 5 bitcoin for the price of 1! -- but before you heard about these Ordinal people you didn't think you would ever be the happy owner of 5 whole bitcoin. And now that you have them, you certainly aren't going to give them up cheap. Just because you got them cheap doesn't mean you don't want them quite badly.'

'That's true. But what about the seller's level of demand? They used to demand bitcoin at a higher price level, but now they are willing to trade them at a lower price level, and so hasn't their level of demand gone down?'

'If by selling coins cheaply you trade them to someone who was willing to pay the market price for them, the trade simply lets them get a good deal. The coins still end up being held by someone who has the market-price level of demand for them. No change.'

'But what if I sell them cheaply to someone who wasn't willing to pay market price for them?'

'So this person gets a great deal. You sell them coins that lots of other people are willing to pay much more for. If the person decides to sell them, the coins end up being held by someone who was willing to pay the higher price that most people were willing to pay. If they decide not to sell them, they are demonstrating that they want the coins more than what they can get for them. Demand goes down because fewer people want the coin in general, not because of your trade. Trading at any price doesn't change demand.'

'I still feel like dumping a coin should make the price go down.'

'Okay, since you aren't listening to me, we're going to have to get absurd: can buying a coin increase the price?'

'Of course.'

'So if the very act of you buying coins makes the price go up, can you use that profit you made from that increase to buy more coins and then when that act of buying increases the price, too, can you use the profit to buy more coins and voila! infinite money machine?'

'Wait! No! That isn't what's happening.'

'But you think the opposite does happen: The act of selling the coin causes the price to go down, selling more coin causes the price to go down more and so on forever?'

'Well, until I run out of coins to sell.'

'What happens then?'

'I don't know. Maybe the price stabilizes or something.'

'Or something. It all depends on if people want the coin. Selling a coin cant crash the price anymore than the act of buying a coin can make it worth more.'

Mathilde also told me to add this:

Come at me.

NOTE

Here's a cleaner (and way less fun) explanation of why selling a coin doesn't decrease the price:

All coin must always be held by somebody.
If you want to get your hands on more coin, you have to be willing to trade something for it.
Trading a coin does not increase or decrease the total number of coins in existence.
Trading a coin does not change demand. The seller's desire to hold something else is exactly balanced by the buyer's desire to hold the coins -- otherwise the trade wouldn't have happened.
Because it does not change the total number of coins in existence (3) and does not change demand (4), trading does not change the price.

I think the sensation that one can "dump" their fork coins (and that this will lower price) comes from thinking that selling them will mean a greater supply of coins for sale than would otherwise be available. This is wrong.

All coins are available to trade if there is enough demand.

Why else would you hold a coin except to trade it for something? We are talking about digital representations of numbers here; none of us are interested in them as numbers (we aren't NFT people). We're just looking for hard money so we can use it to do whatever we want in the world. We hold the coins because of their utility.

So when we think about price being established by supply and demand, supply needs to be the total number of coins in existence (minus however many have been provably burned).

If instead you talk about supply as "the number of coins available to trade," you don't mean the actual supply of the coin, you mean the number of coins people are willing to trade at this price level. The "supply of coins available to trade" is really just another way of saying about demand. It's not supply at all.

In the market at this moment, people are willing to trade $95k to get a bitcoin. If you decide to sell bitcoin for less than that, it doesn't change what people are willing to offer. It just means people will buy your bitcoin. But it's not like that bitcoin is consumed. They might go on to trade it to someone who is willing to offer more. Or they may want to hold on to it for a while. Or they may sell it for less. But all of those things are determined by their demand for bitcoin, not the fact that you were willing to sell it.

The reason this is important is that we all need to realize that hodling coins doesn't give us special powers to affect the outcome of a fork (this is also true for big holders we don't like). When it comes to enforcing consensus, the coins you want are far more important than the coins you have.

Mathilde asked me to make a note that she is fully aware of the block subsidy. She says because of the difficulty adjustment, real, actual bitcoin in the world acts more like the full 21 million are already here than like more of it is being produced. But if it bothers you, she said to pretend it is the year 2140 when you read her explanation. But either way it doesn't actually matter. ↩

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102 sats \ 0 replies \ @CruncherDefi 5h

Her reasoning seems to assume that asset preferences of market actors are static. If you assume that it checks out, sure. But it's not a good assumption. People preferences are dynamic and even can change overnight.

Some traders might have strong, not easily shake-able belief about asset like bitcoin.

But there are also speculators and uncertain people who didn't yet form strong beliefs. Their preferences might change after seeing big dump that exhausted order books. They follow the crowd. They can get scared. They can panic sell. As price falls down liquidations can put it even further as system unleverages causing more people to suddenly change preferences.

The reasoning doesn't seem to hold under the dynamically changing preference landscape.

148 sats \ 22 replies \ @tomlaies 7h

In the market at this moment, people are willing to trade $95k to get a bitcoin. If you decide to sell bitcoin for less than that, it doesn't change what people are willing to offer. It just means people will buy your bitcoin. But it's not like that bitcoin is consumed. They might go on to trade it to someone who is willing to offer more. Or they may want to hold on to it for a while. Or they may sell it for less. But all of those things are determined by their demand for bitcoin, not the fact that you were willing to sell it.

Demand and supply work both in the same way. Boiling down the market dynamics to "Supply doesn't matter only demand matters" or vice versa are tremendously stupid.

0 sats \ 21 replies \ @Scoresby OP 7h

I agree with you, except that in the case of bitcoin there is a fixed supply. You can't change it. So all that changes is demand.

32 sats \ 19 replies \ @tomlaies 6h

Incorrect. Supply isn't 21m, supply is whatever is currently ready for sale at which price.

27 sats \ 17 replies \ @Undisciplined 6h

I think the word "supply" is causing the mixup. What there are 21M of is Bitcoin "stock" (although, that's confusing too, because "stock" has a more common meaning elsewhere in finance).

35 sats \ 6 replies \ @tomlaies 6h

The english language has many of these intricacies. Another one is a "public company" can either be a publicly owned company meaning it's a government institution or a publicly traded company meaning it's a private sector traded on the stock market.

These mixups don't happen in german because they have different words. On the other hand we have other words that get mixed up all the time :D

0 sats \ 5 replies \ @Scoresby OP 6h

Yes, English is horrible language. Words get messy.

You still haven't responded to my statements that in the case of bitcoin supply should be treated as total amount in existence.

133 sats \ 0 replies \ @SqNr65 5h freebie

You guys are yearning for the word "Marginal"

59 sats \ 3 replies \ @tomlaies 5h

Yes, English is horrible language. Words get messy.

German has its problems too :)

You still haven't responded to my statements that in the case of bitcoin supply should be treated as total amount in existence.

I can't answer that because the premise is a fundamental misunderstanding of what "supply and demand" even is. It's not two numbers.

28 sats \ 1 reply \ @Scoresby OP 4h

Think about it this way:

Do you believe monetary inflation can cause price inflation?

If so, why? I believe it is because there was an increase in total number of monetary units in existence.

If this is true, supply has to be equal to total units in existence.

How could it be otherwise?

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0 sats \ 0 replies \ @Scoresby OP 4h

But if you say it is two levels, then you are saying how much people are willing to exchange for a thing is all that matters.

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21 sats \ 9 replies \ @Scoresby OP 6h

Supply in the sense you all are using it is a level, not a quantity.

It's the level of demand for coins at a given price.

But if you want to talk about changing the price of something by increasing supply, you actually have to change how many of the thing there are to bid on.

0 sats \ 8 replies \ @Undisciplined 6h

The Laws of Supply and Demand that we use to determine prices are based on our usage of the words. If you want to understand prices, you need to use the concepts in the relevant way.

Supply isn't one level. It's the whole set of price-quantity pairs that exist in the economy. How much is available at each price. That's what supply curves show.

Demand curves show how much is desired at each price. Where they cross is the point where quantity desired matches quantity supplied. That gives us the market clearing price.

It is not determined by the total stock of the commodity in existence. It is based on human subjective valuations of their own resources. If HODL'ers all had a change of heart and dumped their stacks, that would be an increase in supply.

76 sats \ 7 replies \ @Scoresby OP 6h

There it is:

If HODL'ers all had a change of heart and dumped their stacks, that would be an increase in supply.

What happens first? The holders have to decide not to want it (change their demand).

So the increase in supply as you are defining it can't happen unless there is first a change in demand.

0 sats \ 6 replies \ @Undisciplined 6h

This does get confusing, because with bitcoin the potential suppliers are also often the current demanders.

To make this clear, let's just think about people who are HODL'ing, but not buying more. If that (possibly hypothetical) group of people had a change of heart, then supply of bitcoin increases.

In the messier general case, both supply increases and demand decreases, but the group we're talking about has more ability to drive supply, because they are the major holders of the inventory.

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0 sats \ 0 replies \ @Scoresby OP 6h

So supply for someone willing to pay $95k is different than supply for someone willing to pay $50k?

What is the supply for someone willing to pay $10 million per coin?

0 sats \ 0 replies \ @itsrealfake 2h

Market price is an instance calculation.

instantaneous demand and instantaneous supply.

The conversion of BTC to USD happens at a specific moment in time for a specific quantity of USD and a specific quantity of BTC.

Here's something to think about:

Total supply of BTC can be calculated. Total supply of fiat can not.

And for that reason, BTC's total price = 21M/infinity

38 sats \ 21 replies \ @Undisciplined 7h

No, because you're not changing the supply of the coins, you're changing the number of coins people are willing to trade at this price level.

This is the problem with the argument. "Supply" means how much people are willing to sell at each price. It does not mean how much there is. No one cares how much there is. They care how much is available for purchase.

54 sats \ 0 replies \ @tomlaies 6h

correct

23 sats \ 19 replies \ @Scoresby OP 7h

They care how much is available for purchase.

Don't you mean they care how much is available for purchase at a price they are willing to pay?

I don't magically increase supply if I offer to buy at a higher price. I increase demand if I offer to pay at a higher price.

26 sats \ 18 replies \ @Undisciplined 6h

Yes, supply (often represented as a supply curve) is the set of prices and quantities that describes how much quantity is available at each price.

If it were not related to price, but only physical quantity, then things like gold would have perfectly fixed supplies.

If most people don't believe in the fork coin, then it's supply increases dramatically as people holding it become willing to part with more of it at lower prices.

24 sats \ 17 replies \ @Scoresby OP 6h

The supply of lithium includes how much lithium we know about on earth.

When people discover new deposits (as they do from time to time) it changes the price.

The supply of lithium does not include lithium we don't know about. How could it?

With bitcoin we know how much there is. There won't be any discoveries of new bitcoin.

Supply takes into account all the it we think is in existence and the various costs that might be associated with accessing different quantities of it.

0 sats \ 16 replies \ @Undisciplined 6h

Ok, but when technology advances making extraction easier, that increases the supply without discovering more.

The reason discoveries change the price is because market actors are anticipating the price it will enter the market at. Why buy a ton of lithium today at current prices, when more will be available next month at lower prices? If the discovery is prohibitively expensive to develop, there won't be any effect on price (unless it alters beliefs about future discoveries, or something like that).

31 sats \ 15 replies \ @Scoresby OP 6h

Sure, but usually the story people tell is that if more of a thing is found, and the demand stays the same, the price will fall towards cost.

That's the whole reason people think competition is an effective allocator of resources.

With bitcoin, we all know exactly how much there is. What we don't know is how badly other people will want it.

0 sats \ 14 replies \ @Undisciplined 6h

The story is a short hand that leaves out the mode of action. Demand doesn't stay the same in that scenario. People anticipate the new future supply and forego current purchases. That's how speculators smooth prices over time.

We know neither how badly other people want it nor at what price current holders will part with it.

Again, it doesn't directly matter what the total stock is. What informs prices is what people are willing to sell for.

38 sats \ 13 replies \ @Scoresby OP 6h

What informs prices is what people are willing to sell for.

Isn't that just another way of saying how much demand there is?

I disagree with the statement anyway, or at least how you phrased it.

What informs price is how much people are willing to pay for the thing.

Since nobody pays more than they have to, we don't know this. We just have to assume that they are at least willing to pay what they offer. If no one will trade with them they will have to increase their offer until someone is willing to make the trade. Presumably, if more of the thing could be produced, whoever produced it would be willing to trade for some amount greater than what it cost to produce.

So, the amount of a thing I'm existence definitely plays a role. Just in bitcoin, you can't change production.

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0 sats \ 14 replies \ @nerd2ninja 6h

More volume of coins being sold than bought in a given time frame can drop the price and the price dropping can have the additional effect on the faith in the coin, but technically when the mass trading volume has taken its course, a coin can pump very high on nearly no trading volume (typically a pump and dump) or find a new audience that increases the trading volume.

I would still nonetheless as a person who doesn't have faith in a currency dump that currency onto people who do have faith in that currency, if not for profit, then for shaking their faith in that currency.

0 sats \ 9 replies \ @BallLightning 6h

How can the volume of coins sold be higher than bought? You sell a some coins without someone buying them? This doesn't make sense.

0 sats \ 0 replies \ @_stacktoshi 2h

I think he meant volume of offers vs bids. But any exchange volume could also be fixed relative to some class of buyer or seller e.g. day traders vs. long term investors (retail or institutional)

0 sats \ 7 replies \ @nerd2ninja 6h

Some of you need to buy and sell on a bid and ask based exchange and it shows.

Seeing that the people who were willing to buy at the higher price are no longer buying (ran out of volume) the sell volume must now sell at a lower price to meet the current sell volume.

0 sats \ 6 replies \ @BallLightning 5h

@nerd2ninja said: "Some of you need to buy and sell on a bid and ask based exchange and it shows."

What shows? I don't understand.

@nerd2ninja said: "Seeing that the people who were willing to buy at the higher price are no longer buying (ran out of volume) the sell volume must now sell at a lower price to meet the current sell volume."

I am not sure once again what you are saying. Do you count the unfilled trading orders to what you call "volume"?

0 sats \ 5 replies \ @nerd2ninja 5h

It is reflected in your comment that you have not used a bid and ask based exchange and seen the real time effects of someone getting bored of no one taking their ask and asking lower to go ahead and get out of the market, because if you had, what I'm talking about would be very obvious to you.

No you should not count the unfilled bids and asks as trading volume. We call that fake volume. Lots of exchanges stack fake volume on their exchange to give the false impression that more people are using the exchange than people actually are. So really its best to only count filled orders as actual volume, but as a person on either side of the trade, you can take a bid or an ask immediately (before the orders above and below it can shift) so to you in the moment the highest bid and the lowest ask may as well be the real (however local to that exchange) price to you.

0 sats \ 4 replies \ @BallLightning 3h

Hm... If you don't count unfilled orders to the volume, then what you said about the volume of coins being sold being bigger to the volume of coins being is impossible. If you sell a coin, someone else buys it. So every coin sold is simultaneously bought by the counterparty of the trade. So sold and bought coin volume is always exactly the same. No matter how the trade was accomplished.

0 sats \ 3 replies \ @nerd2ninja 2h

What's on the other side of the trade @BallLightning ?

1 coin sold for $500 1 coin sold for $495 1 coin sold for $490 1 coin sold for $480

You can do it backwards of course

$500 buys 1 coin $495 buys 1 coin $490 buys 1 coin $480 buys 1 coin

There are 4 coins being bought/sold and $1965 dollars being bought/sold

If the volume of coins is greater than the volume of dollars, the price goes down. If the volume of dollars is greater than the volume of coins, the price goes up.

0 sats \ 2 replies \ @BallLightning 2h

Volume of dollars compared to volume of coons? This makes even less sense.

About who is in the other side? In order for you to have a sell order for one coon fulfilled, there mist exist a buy order for one coin to match. The person or entity holding the matching order is "the other side". You always sell coins to someone. This someone is "the other side".

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0 sats \ 3 replies \ @Scoresby OP 6h

If your decision to dump "shakes their faith in that currency" does their decision to give you whatever they give you in exchange "shake your faith" in the thing they gave you?

0 sats \ 2 replies \ @nerd2ninja 6h

If the thing they gave me started dumping while the thing I gave them started pumping, then yeah I'd be pretty concerned about being wrong lmao.

But then you're arguing that dumping a fork coin doesn't dump the price, but it does given the sell volume is greater than the buy volume regardless of total supply.

0 sats \ 1 reply \ @Scoresby OP 5h

If the thing they gave me started dumping while the thing I gave them started pumping, then yeah I'd be pretty concerned about being wrong lmao.

This first requires demand in the market to change. If a thing is pumping it means people are willing to offer more to get it. If it is dumping it means people don't want it.

My point was that you can't only account for the psychology of your side of the trade. You have to think about their side too.

0 sats \ 0 replies \ @nerd2ninja 5h

I feel like I pretty clearly accounted for that when I brought up in my first comment, the importance of trading volume. Whereas your point is not made clear at all and rather seems to imply that price is determined by total supply rather than trading volume and the price is just magical and whether you sell or buy has no effect, both of which are completely and entirely false to reality.

You could say, your volume doesn't matter if the net volume is against you, but that would be wrong too because it logically separates cause and effect. You need many people to sell to change the price, but how can many people be selling, if 1 person isn't selling? Many people are made of many 1 person. So you need 1 person for many people to ever occur.

Footnotes