For most cryptocurrencies either the number of units of the currency is fixed, or the rate of growth in the number of transactions is fixed. So any guess about the long term price people will pay for a unit of some random cryptocurrency is based on their estimate of the probability distribution for both the number of transactions which will ultimately be conducted in that currency, and the velocity of money for that currency.
would you count bitcoins in cold storage as part of the "number of units" or not? i would think not, since if they're locked away in cold storage for years at a time (for speculating or whatever) then those bitcoins are not available for creating transactions with. as of a few years ago the percentage of bitcoin not touched for months/years is very high -- something like 70%:
http://www.ofnumbers.com/2014/11/22/approximately-70-of-all-bitcoins-have-not-moved-in-6-or-more-months/
i believe based on your equation if you for example halve the value of U then you'd double the value of P.
This is a good question. It turns out the answer doesn't matter as long as you use the same answer consistently for estimating all the variables in the equation, but if you don't realize you need to pick one answer and stick with it, you can certainly get yourself into trouble.
Consider a currency with 10 units, 5 in "cold storage" and 5 which are used for 1 transaction each week. If in one week $100,000 of business needs to be conducted, I can either consider all the coins together, which doubles the size of U, but also halves the size of V (velocity of money) since I'm averaging five active coins with five coins which weren't spent at all during the period in question, or I can subtract out the cold storage coins, which cuts U in half, but makes V twice as fast. In both cases the value for P remains the same.
Now that said, you're right that for most major cryptocurrencies, including bitcoin, there is certainly the potential for units of currency to be irretrievably lost, either when someone loses a private key, or when the coins are sent to an address with no known private key in the first place. In fact, we know many coins have been lost in both ways already. Which answer you pick to the question above just determines whether the growing amount of no longer spendable currency units shows up in your equation as a decrease in the average velocity of money (V), or a decrease in the number of currency units (U). Either way this means that the price per unit would have to increase over time, if we assume the value of actual commercial transactions conducted in the currency remains constant.
It's too bad nobody was interested in this post, Maizeman
I wouldn’t interpret the lack of response as a lack of interest. I, for one, was very interested in that post because I found it, like almost all of maizeman’s content, very interesting, but I didn’t respond to it because I had nothing relevant to add.
Same.
I'll third that - most interesting post in this thread, IMO.
Thanks, all! Particularly for longer posts it's really nice to hear whether they are being read with interest by someone, or being skipped over in the discussion as dreaded walls-of-text that are just inconveniencing the people trying to debate back and forth.