The Endogenous Constraint: Hysteresis, Stagflation, and the Structural Inhibition of Monetary Velocity in the Bitcoin Network (2016-2025)

TL;DR

This paper empirically demonstrates that protocol-level throughput limits in Bitcoin create a non-linear feedback loop reducing monetary velocity during high friction periods, leading to a bifurcation in network utility and increased capital concentration.

Contribution

It introduces the Endogenous Constraint Hypothesis and provides empirical evidence of regime-switching effects on Bitcoin's velocity linked to network friction levels.

Findings

Identifies a structural break at TCI ~ 1.63 indicating regime change.

Shows velocity growth slows from +15.44% to +6.06% during shocks.

Documents an 8.03% increase in capital concentration during high friction regimes.

Abstract

Bitcoin operates as a macroeconomic paradox: it combines a strictly predetermined, inelastic monetary issuance schedule with a stochastic, highly elastic demand for scarce block space. This paper empirically validates the Endogenous Constraint Hypothesis, positing that protocol-level throughput limits generate a non-linear negative feedback loop between network friction and base-layer monetary velocity. Using a verified Transaction Cost Index (TCI) derived from Blockchain.com on-chain data and Hansen's (2000) threshold regression, we identify a definitive structural break at the 90th percentile of friction (TCI ~ 1.63). The analysis reveals a bifurcation in network utility: while the network exhibits robust velocity growth of +15.44% during normal regimes, this collapses to +6.06% during shock regimes, yielding a statistically significant Net Utility Contraction of -9.39% (p = 0.012). Crucially, Instrumental Variable (IV) tests utilizing Hashrate Variation as a supply-side instrument fail to detect a significant relationship in a linear specification (p=0.196), confirming that the velocity constraint is strictly a regime-switching phenomenon rather than a continuous linear function. Furthermore, we document a "Crypto Multiplier" inversion: high friction correlates with a +8.03% increase in capital concentration per entity, suggesting that congestion forces a substitution from active velocity to speculative hoarding.