The close relationship between Bitcoin’s scarcity and its price

2020 has been a great year for Bitcoin, institutions are entering the market with force thanks to the characteristics of this asset making it an excellent safe haven value, the scarcity stands out as one of the characteristics that has pushed the price of the cryptocurrency the most. .

Scarcity as a source of value in Bitcoin

The supply of Bitcoin is scheduled to stop producing new coins at 21 million. Of that total, there are already 18.5 million Bitcoins in circulation.

This means that there are a scant 2.5 million coins left to be mined in approximately 140 years, due to a rate of emission that is adjusted by half every 4 years.

We are talking about an extremely scarce asset, is this the most important characteristic of Bitcoin and why is it so expensive?

We speak of scarcity when something is limited or insufficient, and we consider it useful. When we become aware of what that something means for our lives, it gives rise to value.

The scarcity would be meaningless without the human being. Resources have not necessarily been scarce since their origin, it is the human who, depending on the satisfaction that the resource gives them, will give it less or greater value.

It is not the intrinsic value that gives value to a thing, it depends rather on our cultural, circumstantial or even subjective needs. It is human behavior itself that creates value.

A glass of water will not always have the same value even though it is always intrinsically a glass of water. The value will change depending on whether you order it in a restaurant or if you are in the middle of the desert.

Thus, the specific amount of that something will only be relevant when the good is demanded.

With a Bitcoin market in full swing, and limited coins in circulation, I don’t think there are many reasons to look for to validate its surprising rally.

The low supply of Bitcoin would not matter if there were no other relevant characteristics

Scarcity is a construction of reason, so Bitcoin would not be scarce if the other characteristics it possesses did not exist. It is the conglomerate of properties that has earned Bitcoin the adoption it owns.

However, there is no doubt that the low supply is the main driver that today BTC is trading at $ 18,000, as demand increases. It is inevitable to think about the great importance of this feature.

Bitcoin has become a great asset to safeguard value, and for many crypto enthusiasts it may be even better than gold.

The characteristics of the mother cryptocurrency support this sentiment, as it surpasses gold in qualities such as portability, divisibility, security, transactional ease, scarcity, decentralization, and programmability.

Few hands have a large part of the cake, and already the cake has lost several pieces

While 21 million is really a small amount of coins, this remains to be subtracted for the units that have been lost along the way.

According to research by CoinMetrics when the amount of Bitcoin circulating was almost 18 million, it is presumed that there are approximately 1.5 million lost coins, which means that there are only about 16.5 million BTC in circulation.

Probable liquid supply of Bitcoin.  Source: CoinMetrics. Probable liquid supply of Bitcoin.  Source: CoinMetrics. Probable liquid supply of Bitcoin.  Source: CoinMetrics. Probable liquid supply of Bitcoin. Source: CoinMetrics.

As if that were not enough, the institutional institutions that are entering the market are going with great force, and they make that circulating work really small for what is happening, and tiny for what is coming.

According to data from the Bitcoin Treasuries portal, there are 842,000 BTC in strong hands, which corresponds to 4% of the total circulating. Of that 4%, only Grayscale, a crypto fund, owns 2.43%.

Other members of this list occupy much less space, but it is necessary to bear in mind that this trend of institutional entry is just beginning.

Many funds sitting in large piles of liquidity, hope that regulators will soon clear the way to enter the crypto ecosystem.

Meanwhile, the coins continue to float off the exchanges, drastically lowering the supply, and ensuring the vision that investors have their sights set on the long term. As much as a price of $ 18,000 seems high to you, this is just the beginning.

Bitcoin balance on exchanges.  Source: Glassnode. Bitcoin balance on exchanges.  Source: Glassnode. Bitcoin balance on exchanges.  Source: Glassnode. Bitcoin balance on exchanges. Source: Glassnode.

Unlimited fiat money for only 21 million BTC, what do you choose?

We are in the perfect storm for Bitcoin to increase its adoption speed.

The pandemic has forced central banks to issue never-before-seen stimuli, dramatically increasing the number of fiat currencies.

So far this year alone, the money supply of dollars has increased by more than 20%, in a wave of fiscal stimulus that will continue to grow for some time to come.

Central banks have the almost unlimited power to print money, and despite the fact that this can have serious long-term inflationary consequences, the priority for these entities is being to rescue companies that have run out of liquidity.

In addition to the fact that increasing the money supply at this speed can unlock inflation to dangerous levels, saving in dollars is being discouraged. The price of money is getting lower and lower, there are even countries where interest rates have gone into negative territory.

Where do you think that money is going that realizes that it no longer makes sense to save in fiat money, when there are institutions that can create trillions of dollars inorganically.

Do you understand why the scarcity of Bitcoin plays such an important role? I think it was very clear what I wanted to present today.

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