Demand for Bitcoin levels off as Price increases

The law of demand states that as price goes up, quantity demanded decreases. Often demand for Bitcoin is measured by how much new money is entering the Bitcoin market. For example demand from ETFs is commonly described as "inflows of $X Billion". On a smaller scale one might have a DCA amount of $X per month. When the price of Bitcoin increases, the quantity of bitcoin demanded by those inflows decreases by the same amount. Therefore, increases in price will decrease the quanitity of bitcoin demanded with a unitary elasticity. Simplified:

Quantity demanded = Price / Inflows

Example:

$1000 per month buys 1/20th bitcoin at $20000 USD/BTC

$1000 per month buys 1/40th bitcoin at $40000 USD/BTC

Here's the quantity of bitcoin purchaseable with $10 M:

​

https://preview.redd.it/84yxau7izdic1.png?823&format=png&auto=webp&s=a45889fb68d4f11dc733135a91a82fe05efbb30c

As you can see the curve levels off as the price of bitcoin increases. The higher the price gets, the less dollar amounts inflowing into the market affect quantity demanded. When the price is low, a small change in price has a significant impact on quantity demanded by a set inflow and when the price is high a small change in price has minimal impact on the quantity demanded by a set inflow.

There are some stipulations of course, price discovery happens on exchanges for one and there are a lot of other factors involved in that process. But the basic law of demand holds true.

Law of supply also holds true for bitcoin as much as people argue that the supply curve is inelastic. The supply that matters for price discovery is supply on exchanges. As the price increases the incentive to sell increases, so the incentive to move bitcoin from storage back to exchanges increases. As such Bitcoin supply on exchanges is not inelastic. Supply is also not limited to new mined supply. Any supply that exists in wallets can become supply on exchanges.

Bottom line is this: as long as bitcoin's primary usecase is a place to store USD and as long as USD doesn't fail, the price in terms of USD/BTC is soft capped (cap grows with inflation). Don't expect exponential growth in price after some resistance level is broken. I'm not claiming to know where this soft cap is. We've seen the potential of bitcoin to reach $69K which today would be $80K +, so the potential is there. But it's also probable that prices significantly higher than this represent a bubble that will pop as more sellers enter the market.