Me: Yes, as everyone expected.

In: Why do you have this idea? Wouldn't it be nice to have a little more price stability?

Me: A question for you, how often do you buy bitcoin?

In: What does "how long" mean? I'm already investing in Bitcoin.

Me: That is to say, you have invested part of your funds in Bitcoin, so how often do you increase your position now?

In: I have no such plan, I am waiting for an appropriate time to sell Bitcoin.

Me: Let's imagine a scenario where everyone in the world who wants Bitcoin has already bought it. They are not going to sell now, and like you, they are not going to increase their positions. They are dedicated investors and are going to hold their coins for at least 10 years. Starting tomorrow, they will no longer buy, sell or trade, and no new investors will enter the market. So what will happen to the price of Bitcoin in the future?

In: Well, I think it should be sideways, because the whole market is very stable.

Me: No, the price will tend to zero.

In: How is it possible?

Me: Because of block subsidies.

In: What does block subsidy mean?

Me: Bitcoin creates a new block every 10 minutes, and this block contains newly minted Bitcoin (ie "block subsidy"), as well as transactions confirmed and packaged by miners (transactions include sending transactions transaction fees paid by the entities of the Now each block produces 12.5 bitcoins, which means that 1800 new bitcoins are created every day.

In: Got it, I guess those miners generally choose to keep these bitcoins?

Me: Miners are a very competitive industry, and as mines try to mine more and more bitcoins, the amount of energy they need increases, and so does the cost of acquiring those new bitcoins. No matter how many people participate in the competition, the total amount of new bitcoins is always fixed, which also leads to the dilution of miners' profits to a certain extent.

Mining farms have a lot of expenses, especially electricity and equipment costs, so they are often forced to sell large quantities of mined bitcoins to cover costs.

In: So even if everyone held their own bitcoins today, there would be 1,800 new bitcoins waiting to be bought tomorrow?

Me: Exactly.

In: If 1 coin is 10,000 US dollars, 1800 coins are equivalent to 18 million US dollars per day. This will eventually lead to the dilution of Bitcoin value.

Me: Yes. And Bitcoin is halved every four years. After every 210,000 blocks, the block subsidy is cut in half. The block subsidy started at 50 bitcoins, then went to 25, and now 12.5. In less than a year, this number will reach 6.25, and will be halved every four years until it finally reaches zero.

In: Understand, this is the source of 21 million bitcoins. So, if all investors Hodl Bitcoin and not trade it, the price of Bitcoin will keep falling unless new money comes in?

Me: Yes.

In: So if the price of bitcoin is going sideways, that's actually a bullish indicator right? Because that means the market absorbs all the new coins, right?

Me: You're starting to understand.

In: Wow, this is very different from stocks and other investments.

Me: Very few people who invest in Bitcoin bother to understand what they are buying, and those who do do so in depth end up with a feeling of “ahaha”.

In: Yes, that's how I feel right now. Let me ask, why didn't the price of Bitcoin drop to zero? I mean, the market crashed about 10 months ago, but it never actually hit zero, it was as low as $3,200.

Me: Because there are so many people who are long-term bullish on Bitcoin, they are always waiting to buy a bargain. In your case, let’s say you want to buy Bitcoin for $8,000 and sell it for $16,000, you’d be very happy with the transaction, right?

In: Of course, that feeling is very cool.

Me: But many currency holders in the market will not consider this a successful transaction.

In: This...

Me: They don't measure profits in dollars.

In: You mean they measure in yen or pounds?

Me: No. They are measured in Bitcoin.

In: Huh?

Me: These people are not trying to get more dollars by continuing to trade, they are trying to get more bitcoins. They don't make any claim that Bitcoin is just a speculative tool, they believe that Bitcoin will eventually become a world currency, or at least a reserve currency.

In: This seems a bit far-fetched.

Me: Why do you say that?

In: If this happens, you will never want to sell your bitcoins.

Me: Exactly.

In: So you're saying some investors will never sell?

Me: Yes. They will only sell if they are convinced that the price of Bitcoin will drop to a certain level, so that if it does drop, they can buy back more Bitcoin.

In: This is not good.

Me: Some will be betting, and some will be trying to time the market. But their overall goal is to get more bitcoins, which is why despite 1800 bitcoins being thrown into the market every day, the price of bitcoins has not returned to zero.

These investors all have a "wow, it's so cheap" price in their hearts. At this time, they will spend more funds to buy Bitcoin.

In: So if my goal is to get more bitcoins and I see the price of bitcoins go down to $4000, instead of getting upset about losing money, I feel like it’s time to get more bitcoins good time?

Me: Exactly. When the price goes up, it becomes more difficult to get more bitcoins. In fact, everyone who owns Bitcoin hopes that the purchasing power of their Bitcoin will eventually rise, but many people have a long-term vision, so they are not in a hurry to achieve this goal. They think that the price drop of Bitcoin is a huge Opportunity.

In: Okay, let me go back and summarize what you said.

If all investors today said"i have bought enough"Then the price will drop tomorrow because there are 1800 new coins to be sold by miners. This will cause the price to drop, but there is a pile of money waiting to pick up a bargain, and when the price drops to "wow, this is cheap", buyers will come and grab these coins.

Me: Yes.

In: So when people rush to grab a bargain, it causes other speculators to follow suit, causing prices to rise.

Me: Exactly. There are many reasons why people sell bitcoin, and even the staunchest believers in bitcoin will still sell coins to acquire an income-generating asset, or a house, or to invest in something else. They will make a calculation in their hearts: "Will the benefits brought by this asset or investment be more than the Bitcoin I gave up?"

In: So have these Bitcoin faithful ever stopped buying Bitcoin?

Me: Very common. Most of them keep a close eye on the market and pause buying when it spikes. When a lot of unsuspecting money pours into Bitcoin, they stop and wait for the frenzy to subside, while miners still have to sell their new coins every day, and the price inevitably falls, at which point those "believers" "Ready to take out deposits to buy more bitcoins.

In: Ah. That's why we see prices go up and down forever.

Me: In the short term, yes. But when the block subsidy becomes an insignificant part of miner revenue relative to transaction fees, then the situation will change again.

In: I understand, there are a lot of food for thought in today's conversation. So how do I know when is a good time to buy or sell?

Me: People who claim to know something are usually trying to sell you something, or they already have a presence in the market and are trying to get others to follow them.

I recommend that you learn as much as you can about how Bitcoin works behind the scenes, and then find your own way of knowing when to buy and sell.

(Original text: Jason Smith | Compilation: Marshaka)