The Power Of Stock-To-Flow In Action [Updated]

I was just reading CoinDesk when I ran across this very interesting article:

https://www.coindesk.com/bitcoins-rally-supply-crunch-in-china

The gist of it was that Chinese Bitcoin miners who account for 70% of the mining power in Bitcoin are having difficulty cashing in their Bitcoins to pay their power bills because of a government crackdown. Chinese miners are having their bank accounts frozen.

Currently, 74% of the miners are facing difficulty liquidating their holdings to meet electricity expenses, a Chinese crypto watcher going by the name Wu Blockchain mentioned on his Weixin blog, according to QCP Capital. Thomas Heller, formerly global business director at the mining pool F2Pool and now chief operation officer of mining and media firm HASHR8, confirmed the Chinese miners’ predicament earlier this week, saying it’s currently a “challenge” for Chinese miners to convert bitcoin and tether into cash. Chinese authorities are cracking down on OTC desks over money laundering charges which is making it difficult for the miners to sell through their usual fiat off-ramps.

At some point, the Chinese miners will have to be able to unload their coins to remain solvent. If won't be able to, the coins will find their way onto the market anyway as they will be liquidated in case the miners go bankrupt.

According to the article, the problems of Chinese miners started in early September. They've been going on for a couple of months now. The massive rally in the price of Bitcoin coincides perfectly with that.

If you want to see anything positive to this, it should be the observation that cutting the supply will cause the price to skyrocket. :)

[Edit: I was pointed out elsewhere that the number of coins miners make per day which is 900, is not too large. That is correct. The daily volume is $33 billion whereas the number of BTC mined daily is only worth about $16 million. Hence, even if all of the coins that have not been sold were mined today, it wouldn't make a much of a dent to the buying pressure existing on the market right now.

Thanks for pointing that out, @ew-and-patterns. Should've checked out the daily volume to realize that this is more complex than I thought.

But, interestingly, what this means is that even if the supply were cut further as it will be come next mining reward halving, the demand side would still dominate the price without the halving having much effect on it - if it is correct that the price increase causes a significant supply shock driving the price higher.

So, what I'm wondering is this:

The halvings lead to a higher cost of mining, which in turn leads to a higher price of BTC if interest in BTC remains constant. But how large should this effect be if the daily trading volume is 2000 times larger than the number of coins mined every day? Does this mean that the stock to flow model is little else but a self-fulfilling prophecy only gullible idiots take seriously? If so, why does it work across asset classes? Or have I misunderstood the role of daily volume? What other relevant things have I misunderstood? I'm genuinely curious because I want to understand this.]

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