PV = nRT
https://ift.tt/Jw0EH8L
The ideal gas law, which you might have studied in physics at school, describes the relationship between the pressure in a gas-filled container, and other variables like the container’s volume, the temperature and the number of gas molecules.
With Bitcoin, the nearly fixed number of coins equates to the nearly fixed “volume” of the “container”. (19M coins today, 21M coins ever, minus all the lost coins.) Note that the use of the word “volume” in this sense is unrelated to the concept of “trading volume” used in the finance industry.
n is us — all the small fish, whales, companies and nation-states that will cram into that limited supply of Bitcoin.
T, representing temperature in the ideal gas law, is something like “sentiment” here — how energetic and fervent those market participants are. Something like the [Fear and Greed Index](https://ift.tt/PgXMiIC). This is an indicator of how competitive for coins these market participants are between each other.
Price is then a function of essentially fixed supply, number & makeup of participants, and sentiment. Nothing groundbreaking here, but it’s interesting to think about how this is a self-fulfilling system, leading to booms and busts, at least in the near-term time horizon. As price appreciates, Bitcoin both attracts new participants and heats up sentiment & competition among participants, therefore accelerating the upward cycle. On the flip side, when price goes down, it’s self-fulfilling in that direction too, with participants both exiting and becoming less fervent competitors for coins.
I suppose this analogy could apply to any market, but there’s something about Bitcoin’s unique nearly-fixed supply acting like a fixed-volume container that seems particularly relevant. Bitcoin is like a pipe bomb, but one that can never rupture even as participants and sentiment climb to new heights. The only variable that can absorb all that energy is price.
Cryptocurrency
