[wallacoloo]

one usually hears the opposite argument: Bitcoin becomes more scarce as users lose their private keys. lost keys => smaller supply => higher price per unit. i can see the opposite argument though: lost keys => less desire to interact with bitcoin => lower demand => lower price per unit. so it might just be a wash.

[ImPostingOnHN]

The former relationship wouldn't play out IRL, since there's no authoritative "lost bitcoin registry" to signal to buyers that the supply has effectively decreased

[netheril96]

The buyers do not need to know about that. The effect of supply and demand on price doesn’t depend on anyone knowing supply and demand.

[ImPostingOnHN]

the effect of supply on demand does indeed require that buyers know something about the supply

I mean, just think about it for a moment: how many bitcoins were "lost" today? Was it 0 or 100,000? Perhaps it's -100,000, because somebody gained access to 100,000 that were previously lost.

If it doesn't make a difference, then the supply isn't affecting demand

If it DOES make a difference, then demand can't be affected, because nobody knows whether it was 0 or 100,000 or -100,000

[netheril96]

The effect of supply and demand on price come from people bidding on the free market, not from anyone on the market knowing the global supply and demand.

If people have to know supply and demand to determine prices, how can free market work for thousands of years before the basic principle of economics is established?

[wallacoloo]

say BTC rises from $30,000 to $300,000. two scenarios:

1. 10% of all BTC holders want to cash out. nobody lost their keys, so 2M BTC hit the “supply side” of the market.

2. 10% of all BTC holders want to cash out. half of them lost their keys, so only 1M BTC hit the supply side of the market.

this is the way it makes a difference. in the latter scenario, BTC spot price would likely reach a higher value.