Price floors can be used to predict what technical analysis experts call "support."
In part three of the series, I described how I used price floors to predict Bitcoin's fall from $5600 to $3170 almost to the dollar.
This is part five, on the price floor created by denomination of goods and services in a currency.
Price Denomination
The denomination of goods and services in a currency provides the sturdiest price floor for a currency.
We haven't seen this yet in cryptocurrencies on large scale, but it's starting to happen in Venezuela through sites like Freelance For Coins.
Denomination of goods and services in a currency inevitably follows the adoption of cryptocurrencies as payments in a local, closed-loop economy, or in economies with no imports and exports. Without products priced in other currencies on either end of a supply chain, the relative price of a currency becomes irrelevant.
Native denomination of goods and services has a ripple effect. Through social pressure, this ripple effect might extend outward, but through economic forces it extends downward in a supply chain.
For example, a merchant pricing sandwiches at ₿.001 might see his competitors adopt a similar rate, but a farmer selling chickens at a fixed ₿0.001 enables his whole supply chain downstream to start pricing products in Bitcoin with an absolute reference to their costs.
This relative valuation of goods and services is the principle behind the Big Mac Index, which values goods and services of a country relative to the price of a McDonald's hamburger in its currency.
In the same way, we can start to value a cryptocurrency with reference to what it buys.
Cryptocurrency Adoption In Venezuela
This hasn't happened on a large scale yet, but it may be the next step for third world countries using cryptocurrency.