It isn't significant to market value, it is significant to governance but only if it is centralized, just as with low or limited crypto supply.
Applying theories from fiat and stock-based systems to crypto without conducting thorough testing to ascertain their relevance and applicability imposes an unnecessary burden that we ought to avoid.
The dynamics of supply and demand typically operate differently in the realm of cryptocurrency. However, there seems to be a tendency to confine it within the framework established by fiat and stock-based systems.
Indeed, within the realm of economics, it's pertinent to acknowledge that traditional frameworks, including the concept of centralized control over market value, may not be directly applicable to cryptocurrency tokens. This is because the market value of cryptocurrencies is determined independently by traders rather than being dictated by any centralized entity.
The law of supply and demand is a fundamental economic principle that describes the relationship between the price of a product and the willingness of buyers to purchase it and sellers to produce it. According to this law, as the price of a product increases, the quantity supplied by producers rises, while the quantity demanded by consumers decreases. Conversely, when the price decreases, the quantity supplied decreases, and the quantity demanded increases. This interaction between supply and demand determines the market equilibrium, where the quantity supplied matches the quantity demanded, leading to a stable price. The law of supply and demand is crucial in understanding market dynamics, predicting consumer behavior, and making informed economic decisions
Perplexity
Judging by the definition above, the law of supply and demand focuses largely on “consumables” rather than network assets with active economic roles like crypto assets.
When this law of supply and demand is applied to stocks, here's what is said:
In the context of the stock market, the price of a stock is influenced by the balance between supply (the number of shares available for sale) and demand (the desire of investors to buy those shares). When there is high demand for a particular stock but limited supply, the price tends to rise. Conversely, if there is an oversupply of shares in the market compared to the demand, the price is likely to fall. This principle of supply and demand plays a crucial role in determining stock prices, reflecting investors' perceptions of a company's value and future prospects
Perplexity
What happens in the market is vastly psychological, this is why the best performing assets are usually the ones with expert marketing.
I am of the belief that supply - as in when people concentrate so much on crypto assets having high supply - is really not important unless that supply is vastly centralized.
The thing about where I stand right now on this is that it applies in the same way to limited supply coins. If the supply is centralized, it poses the same risk.
There are primarily two areas I want to focus on to expose how crypto is not in the same category of “products” referred to in laws of supply and demand.
This two areas are:
Who controls the supply
Who sets the price of the assets
Who controls the supply
We are going to ignore proof of work systems here because the supply already in such ecosystems play little or no significant roles in the network itself and are frackly self limiting.
We will focus on blockchains whose native assets have direct influence on the development process of the network.
That said, why does who controls the supply matter?
I've seen, on numerous occasions, people asking why governments of the world can't just print money instead of taxing citizens or borrowing from neighboring countries, they all don't seem to understand that “national currencies” are not universally accepted thus your printing is pointless and damaging unless you're a self-sustaining state that does not rely on any export goods because those will not be paid for in your country's currency(most times).
How is this relevant to the discussion at hand?
I'm glad you asked.
You ought not to forget that I am, at the fundamental after exposing that supply applies differently to crypto than it does to fiat and stocks.
With fiat, a centralized entity can issue new currencies. Also with stocks, a centralized entity can issue new stocks.
In these two scenarios, one person or body benefits while everyone else takes a loss.
New currencies kill the value of the existing ones because they are not backed by any economic developments. Same as with stocks, the entity gets fresh capital and everyone else loses money.
With crypto, there's no centralized entity to issue new tokens at wish. The issuance of new tokens is more often than not already hard programmed into the system that it already follows a defined pattern independent of anyone.
Who sets the price of the assets
The laws of supply and demand talks about prices increasing and decreasing in a way that almost seems like the public determines the prices in the first place.
The reality here is that prices are set by the same companies and its competitors. More often than not, competitors are the primary cause of changes in prices, not the consumers by a large margin.
Recently, there's been some stories in Nigeria about Air transport tickets having been made insanely high for no reason as a certain Air transport company introduced fresh ticket prices that made everyone gasp at how they've been paying 2X for absolutely nothing.
I am not sure if the Air transport company mentioned is new, but their tickets for the locations I saw were about €700+ where other companies were charging over €1,500 for the same location.
What happens next here is that those other companies will have to bring down their prices or risk running on a loss because the other company with the cheaper pricing offers just as good of a service.
This single example proves that “competitors” are the primary reason behind major price shifts of various products and services, not the end users or consumers.
With fiat, the government is often heavily manipulating the value of their currencies, this is not news.
That said, with crypto, what seems to be the case? Who sets the price?
The prices are independently set by traders buying and selling, not by a single entity, so why then should we worry over supply if it is not centralized?
Think about this, if the supply of bitcoin and that of Shiba Inu were identical by percentage - meaning that the same number of accounts holding X percentage was the same with bitcoin - and both crypto had the same market cap and the same market demand.
How much % increase do you think $100 billion of fresh demand for both coins would cause?
Here's some rough numbers on what I mean:
Let's assume there are all 21 million bitcoins in circulation with each worth $70,000, that's $1,470,000,000,000 in market cap.
Let's say that there are 100 trillion Shiba Inu coin, at $1,470,000,000,000 market cap, each coin would be worth $0.0147
Now, if $100 billion is injected in both coins, they will both experience the exact same % increase in market cap and holders will see the exact same portfolio value increase. The person holding 1% of bitcoin supply and the person holding 1% of Shiba Inu supply will see the value of their wallets increase in the exact same figures because supply and demand here are exactly the same by %, the raw numbers do not matter.
The significance of his numerous tokens in the broader spectrum is not important if the ecosystem is seeing value inflow, his portfolio will do pretty well.
Supply within crypto is only a problem when it is centralized by % distribution, simple, otherwise, we only are greedy lots trying to see a trillion supply coin go to $100 each so our small bag of 100,000 coins will make us hyper rich when we should be actually aiming at holding a lot more of the coins understanding that our profit will only be significant when we hold considerable amount relative to the total supply.
That said, the psychology of less supply more value is largely buried in our brains that we simply go with it even though that's not true.
I mean, if it was so true, why is Ethereum with more supply more valuable than Bitcoin Cash?
It's not about tokens merely being a trillion supply that is the problem, it's how concentrated that supply is that can pose a threat because we are dealing with systems governed by the same assets in mention.
Posted Using InLeo Alpha