What are we doing today, Brain? Same thing we always do on a Friday night, Pinky, trying to... write articles about crypto because... stuff.

Scarcity; what does it mean and why does it matter?

Or, does it matter?

Should it matter?

We hear a lot of metrics floating around, and it seems like some things, like market capitalization or daily volume, really tick some people off. It kinda cracks me up, because the numbers didn't do anything to provoke you, but the idea that some of these stats might be meaningful gets some cryptonians in a tussle faster than you can say "stock to flow"- lol.

Looking at things like marketcap is simply a way of bundling together  numbers that can be telling about what's happening in the market, and like many forms of statistical data, information can be used to inaccurately weigh details in a given direction. So, while knowing marketcap is a good thing for understanding trends (knowing an asset's or entire market's current value and the number of unit's currently available), it isn't the only thing, and it may matter more as a "trending" metric than a "value" metric. That is to say, it might matter more whether "x" has been trending down in value per share for 3 weeks, versus "x" is worth $1B marketcap. Make sense?

So, is scarcity one of those things that only matters for some things and not for others?

The truth is that in the best economic model where you want to see something have an advantage of going up in value, scarcity is a pretty important metric. It isn't a bias against Doge to make a point that it is intentionally designed to lose value. Don't get mad at me; I didn't create it, but the guy who did made a point, for years actually, to remind us not to take it too seriously, because he made it as a joke, a meme-tribute, with an intentionally bad economic model designed to do the opposite of what Bitcoin does correctly.

So, if you're waiting for the $2 pump I often bring up, the truth is that the more people who like Doge, buy Doge, back Doge, bring people into the animal kingdom to buy more Doge, the less likely it is to actually pump at market. I'll get back to it soon, but understand, the supply of new Doge created will continue to dump into the supply just when you surely wish it wouldn't. The only real reason anyone would buy it, other than billionaires that shilled you and laughed about it, is because you love the picture of the dog. That's it's value point.

Some coins recognizing the value of scarcity, but uncertain how the market will actually respond to new models in a new economy, will choose to arbitrarily 'burn' tokens to reduce supply and trick the economics into leaning against the price. Is that a good thing? Well, I'd say that while controlled burns are said to be good for forest fires, I tend to think it is a form of manipulation that could, at any given time unless pre-programmed and set into code-is-law, be used to pump based on supply or to provide incentive to funding rounds, and I imagine it could be the kind of thing regulators actually study at some point in time. I personally believe it is one of those "we understand enough about economics to know we want scarcity, but we don't know the markets well enough to know if the price will act accordingly, so we want the ability to artificially boost market value when it looks like a coin needs it" type situations.

Bitcoin and Litecoin, digital gold and silver, are designed at the front of the economic model, with a scarcity: a limited supply. I'm not talking about how many are at market and how many are to be mined. If ever, either project is somehow coaxed into changing this, the value will forever be ruined. The cohesive center of all trust in the meaningful nature of their value is forged in the brilliant economic model they both utilize, and Litecoin in my opinion is 'the' other one to care about for this purpose, because it was designed to follow exactly what makes sense with Bitcoin, while working a little bit better as an actual transactor of money.

While Bitcoin has a limited supply of 21 million ever to be minted, Litecoin will never have more than 84 million coins. With 8 billion people, even 84M may sound like a good limit on scarcity, and with the price to accumulate LTC one might think both could easily get bought up, but this is where the market gets interesting.

We're talking about whether scarcity matters, and it does, but until you're actually struggling to get a piece of the supply, every single coin is about perception and about the difficulty metrics. I'll explain.

Let's say you have a gazillion Doge coins and the price is at $0.22. People are pouring millions of dollars into Doge and it goes up to $0.24 and they're flabbergasted. How on earth did all of that pumping barely move it $0.02? Well, first of all that is actually a substantial move if you take profit, which I personally believe is the one smart thing to do with Doge. But, with a coin that is easy to buy anywhere at any time, the only metric that could possibly make it go up without question, is if someone were trying to make market buys and they were having trouble obtaining them.

If you look at the order books on Doge on any major exchange, you'll see there's plenty of billions of dollars of Doge already purchased at every single value that is too high for its price valuation. There isn't enough money in the entire crypto market to make the price go up based on who is already knee deep in it. So, the only way for the price to go up substantially is for interest to die down so low, that an organized pump is easy to move the books before there are enough new sell orders to keep up with the extreme short term demand. Even then, this would not work for the most part, without one other trick: finding a lesser exchange to pump it on.  

See, if there is a relatively low-volume crypto exchange, you will find fewer orders, thus thinner orders to be filled. If someone pumped a popular coin there, and got enough people to join in, the price would pop for a few seconds until there weren't any higher value orders left, and then everyone would either get stuck and it would come screaming down, or people would get stuck at the top as all new coin pumps are.

Doge will pump in accordance with Bitcoin's price movement, but unfortunately it does suffer from the toughest hurdles to overcome at market, because when the price starts to move, so many people will pile in, it will never stop the cycle of jumping from FOMO to FUD no matter what Mark Cuban says or how many places he accepts it as payment.

The issue with value at market is a calculation of the current price, the value of the amount of buyers trying to get it at that price, and the value of the number of people trying to sell it slightly higher than that price. So, let's say we have a coin worth $10 and 10 people want to buy 100 of this coin at $10 and are willing to go as high as $10.01, the amount of economic pressure it would take to remain right around the same price after filling those orders would be 10 (people) x 100(coins)x10($10/coin). That's 1,000 coins to be bought worth $10,000. If there is exactly $10,000 worth of sell orders on the book at that time, then it isn't likely to change the price to fill the order, but the math on exchange transactions is slightly different, so this can be slightly weighted to throw the price a little in one direction or the other. Generally, that is the model.

Now, imagine if you had 1000 people who wanted to buy 10,000 of the same coin at $10, but they want it bad enough that they will buy at market if they can't get it filled at that price. Two scenarios; the non-scarcity model- there are people willing to sell it at $10-12 and there are $50M worth of sell orders in that range. All of the orders will get filled and the price won't have to go above $12 to fill them. The scarcity model; everybody loves their coins, values them, and only 10% of people who already own the coin are willing to sell it, and the fewer the people willing to sell, the higher their price to part with their prize. People try to buy at $10, 11, 12, 13, 14 and they find that if they're going to get 10,000 coins (just one individual), they will keep market buying while the only people left willing to sell are asking $20, 30, 40 50 dollars a coin.

With something like Bitcoin, the finite supply is absolutely crucial to whether the price will continue to rise past previous all time highs. There are hundreds of thousands of Bitcoin sitting in crypto exchange accounts, and I'm not talking about the ones that 'belong' to customers. I'm also not talking about the ones in cold storage. The fact that 1 Bitcoin is expensive is less important than the fact that there are still tens of thousands of them to be purchased before there begins to be a limited supply. The bigger the coin at market, the more market makers there are, the more volume and liquidity, so it is unusual that there aren't plenty of people willing to sell at all prices, but eventually the whales want a few dozen, a few hundred, a few thousand, and in most cases this is an acquisition, it isn't a bet. They are buying to HODL at least until the price doubles or triples.

What we are most likely seeing in today's market is the expansion of the realization that Bitcoin is becoming the hedge against world-condition fear, not at just an individual level, but at an international level. Nations are seeing the need to hold Bitcoin. Business leaders, investment bankers and crooked politicians, they're all realizing that digital scarcity is going to be meaningful as they work hard to screw up freedom for the entire world's population.

We have not bumped up against the real price of scarcity, but when it happens, it will be the most distinctive mark setting off a scarcity model compared to a Doge 'haha funny' principle. Again, both can pump. We will see doggy pumps several times in 2022. But, it won't be to $3-4 unless the U.S. government mints $10T just for the sole purpose of acquiring Doge reserves, and I wouldn't put it past Biden- lol.

Until we see what true scarcity looks like, and I didn't even go into how supply is mined etc., Crypto Gordon Freeman will be watching and anticipating the next 'thing' that happens in the wacked out world of crypto. And on that note... for now... out.