Bitcoin Investors

Report
2016 Edition
Travis Patron

The Law of Number

www.diginomics.com

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Table of Contents

How to Use This Report ................................................................................................. 3

The Bitcoin Block Reward Is Halving In 2016 ............................................................... 4
Block 420,000 ............................................................................................................ 4
A New Supply & Demand Curve ................................................................................. 5
What Happened Last Time? ....................................................................................... 7
Has The Market Already Anticipated The Decreased Supply? .................................. 8
The Only Constant Is Change ..................................................................................... 8
Bonus Content ................................................................................................................ 9

How to Use This Report

The 2016 Bitcoin Investors Report is a concise summary of the most important
factors in price analysis for the upcoming New Year.
In this report, we outline a few key developments to focus on within the bitcoin
industry as it relates to market perception of the mainstream adopter, venture capital
investment in startup infrastructure, and medium-run trends that have the potential
to challenge the business models of financial incumbents.
Throughout this report, we aim to state objective truths. We believe it is the
investors decision when to act on these truths. The developments presented in this
report represent a window of opportunity for the acute observer.
The market perception of bitcoin has deviated from a basis for the future of money
to nothing more than a mirage. One thing remains clear however: bitcoin is here to
stay.
The most powerful thing an investor can do is arm themselves with the knowledge
and wider perspective to anticipate the trajectory this technology will take in the
years ahead.
We wish you the best of fortunes noble bitcoin investor, and remember:

Ask not how to make more money, but how to make more bitcoin.

The Bitcoin Block Reward Is Halving In 2016

The supply issuance of new bitcoin is set to drop from 25 to 12.5 bitcoin in
2016. This has happened exactly once before in the history of bitcoin at
the turn of the 2013 New Year. Every enthusiast knows what kind of year
2013 was for bitcoin, but what should we expect this time around?

Block 420,000
The 420,000th block mined will mark an important milestone in the maturity of the
bitcoin network.
TABLE 1: MONEY SUPPLY SCHEDULE

Block

Reward Era

BTC/block

Year

Start BTC

BTC Added

50.00000000

2009.007

0.00000000

10500000.00000000

210000

25.00000000

2013.000

10500000.00000000

5250000.00000000

420000

12.50000000

2016.993

15750000.00000000

2625000.00000000

630000

6.25000000

2020.986

18375000.00000000

1312500.00000000

840000

3.12500000

2024.978

19687500.00000000

656250.00000000

1050000

1.56250000

2028.971

20343750.00000000

328125.00000000

1260000

0.78125000

2032.964

20671875.00000000

164062.50000000

1470000

0.39062500

2036.956

20835937.50000000

82031.25000000

1680000

0.19531250

2040.949

20917968.75000000

41015.62500000

Predicted to be found in the 2 nd half of 2016, block 420,000 will be the first
block to compensate miners with a 12.5 bitcoin reward instead of the usual
25. This quad-annual event of the bitcoin mining algorithm will have
important implications for mining pools and investors alike.

Marking a new era of the mining reward scheme, block 420,000 represents
a considerable focal point for bitcoin investors: issuance scarcity is
doubled.

Given that demand remains constant, a decrease in supply would necessarily

increase price.

A New Supply & Demand Curve

When we come to understand the effect of the block reward halving, we can plainly
see that each different era of the block reward represents a distinct supply curve. In
the model below, each supply curve is vertically aligned due to the perfectly
inelasticity of bitcoin supply issuance. Regardless of the market demand on bitcoin,
miners will continue competing to issue a predictable supply of new units every 10
minutes. No deviation from this block reward target is made until the future
occurrence of another block reward halving.

Our current equilibrium is represented by Q25P*. Our current supply and demand
curves are S1 and D1 respectively.
The current supply curve, S1, will shift inward by 50% at the block reward halving.
This gives us a new equilibrium of P1Q12.5 assuming demand remains constant.
Consumer surplus for investors in this scenario would be equal to area A [(P1
P*)Q12.5].
Additionally, depending on a number of market externalities, we may also see a shift
in the demand curve from D1 to D2. In this scenario, equilibrium would be at point
P2Q12.5. Consumer surplus for investors in this scenario would be equal to area A + B
[(P2 P*)Q12.5].

An outward shift in the demand curve would be dependent upon a number of

indirect factors such as:

New bitcoin applications & increased usability for the mainstream consumer.

Increased public debt to GDP ratios of national governments.

Decreased price of oil, and subsequently, loss of confidence in oil-correlated

currencies (Canadian Dollar, Russian Ruble, et al.).

What Happened Last Time?

During the months leading up to and following the previous halving at the turn of the
New Year in 2013, bitcoin went from being traded at $12.10 on November 27th,
2012 to $266 on April 10th, 2013.

The graph demonstrates the dramatic effect on market trajectory an adjustment to

supply has on bitcoin price.

Has The Market Already Anticipated The Decreased

Supply?
Many observers will argue that consumers have already braced the increase in
scarcity, and as a result, we are already operating at a new equilibrium point.
Although this ascertain remains unclear, it is possible that many investors are buying
bitcoin hand over fist in anticipation of the block reward halving. Has a potential
price increase already been anticipated by the market?
When 341 users were polled in November, 2012, codinginmysleep.com reported that
37% of those respondents believed the market has indeed anticipated the rise in
bitcoin scarcity and is already operating at a new equilibrium. The remaining 63%
however, believed that lower inflation means higher value.

The Only Constant Is Change

If the previous block reward halving is any indication, we may see a shift in the price
of bitcoin due to an increased issuance scarcity. Market research has shown us that
investors of bitcoin may not have yet fully anticipated this shift, and therefore, we are
still operating at an equilibrium point which correlates with a block reward of 25
BTC/10 minutes. The 2 6 month span immediately following the confirmation of
block 420,000 may see a price rise which reflects the events of early 2013.

Bonus Content
Bitcoin Economics Course

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