Bitcoin is a Giffen good (Reddit Bitcoin)

Giffen good-- a good, demand for which increases following a rise in price. In other words, an inverted demand curve.

There was an article in Bloomberg the other day claiming "The Bond Market is a Giffen good." If you follow global markets, it's absolutely worth a read. I have had the same thought about Bitcoin for a while.

Why is Bitcoin a Giffen good?

  1. The higher the BTC price, the larger the market, and the less volatile. The greater perception of safety and reliability in the asset.

  2. Relating to point #1, a higher price creates a sense of importance in the asset. As the price goes up, the news media & experts become more deferrent rather than critical. (When the price falls, they flip-flop again, and once again become critics)

  3. The more money people make with Bitcoin, the more they tell their friends, who go out and make purchases.

  4. People fundamentally have an instinct to buy things that are going up. (This instinct causes bubbles, but it's not all bad. things going up do tend to go up in the future, this phenomenon is known as a trend)

What are the implications?

The most obvious implication is that a rising price creates rising demand, creates rising price. A feedback loop.

Isn't the same true of silver/gold/beanie babies/stocks?

Yes-- however, the reason that these assets cannot rise 100x in 5 years, is that although the demand curve slopes upward during bubble-like conditions, the supply curve looks like a very normal, healthy supply curve -- the higher the price, the greater the supply. Every bubble in an asset with a healthy supply curve will eventually be brought down to earth. The realization that "the bubble is now over" in turn, flips the demand curve back to normal, and price normalcy returns. (Is there any major non-crypto asset with an "inverted" supply curve? Are there any historical examples to learn from? The answer is no, so you have to make a guess and use your head, instead.)

Bitcoin has neither a healthy supply curve nor a healthy demand curve. The asset is entirely and thoroughly diseased, and just like in a diseased human being, the result is that numbers normally kept within a certain range by negative feedback loops, parameters are going completely bonkers.

Giffen Good status plus inverted/flat supply curve guarantee that the Bitcoin bull market since 2009, continues over time.

submitted by /u/Jowemaha
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