About 60% of BTCs in circulation (18.5 million BTCs) are held by Institutions and individuals. These investors have never sold more than 25% of the BTCs they have been holding as long-term investments. New Bitcoin investors are now finding it difficult, because of the scarcity of Bitcoin.
About 18.5 million BTCs are currently in circulation and only 21 million BTCs are ever going to be produced in total. There is a differential of about 2.5 million BTCs that are left to be produced.
What You Need To Know About The Scarcity Of Bitcoin
Bitcoin, unlike silver and gold, can be sent over the internet, radio, or satellite. It allows fractional ownership and rapid settlements; possesses strong liquidity; runs on a secure ledger architecture.
These crypto asset, like gold, cannot simply be created arbitrarily, it is limited and finite supply to a max of 21 million Bitcoins, ever. Gold’s supply has historically increased at around 2% per year. However, Bitcoin’s supply increased less than 2% after the 2020 halving, and will go to less than 1% a year after the 2024 halving. Bitcoin’s supply will end when the last Bitcoin is mined approx in the year 2140.
A crypto analytic firm, Chainalysis wrote a report on the fact that most BTCs are held by those who treat it as digital gold. Excerpts from their report “This digital gold is supported by an active trading market for those who prefer to buy and sell frequently. The 3.5 million Bitcoin used for trading, supplies the market. Also, the interaction with the level of demand determines the price. “With more people looking to trade Bitcoin, it’s only becoming scarcer following the recent halving.”
Although, retail traders are responsible for 96% of transactions, professionals move the bulk of the volume.
Retail traders, whom we categorize as those who deposit less than $10,000 USD worth of Bitcoin on exchanges at a time, appear to be the large majority, accounting for 96% of all transfers sent to exchanges on an average weekly basis.
Chainalysis also noted that the liquidity of the crypto market is controlled by professional traders and investors. However, this accounts for 85% of all the USD value of Bitcoin value that is sent for exchanges or transactions.
What Gives Bitcoin Its Value?
The consistent low rate of supply of Bitcoin is the fundamental reason it will maintain its monetary role in the future. One major key to the maintenance of a currency’s value is its supply. A money supply that is too large could cause prices of goods to spike, resulting in economic collapse. A money supply that is too small can also cause economic problems. Monetarism, which is a macroeconomic concept aims to address the role of the money supply in an economy.
See Also: Bitcoin: The New Goldmine For Institutional Investors To Hedge Funds.
Moreover, in the case of fiat currencies, most governments around the world continue to print money as a means of controlling scarcity. Many governments operate with a preset amount of inflation which serves to drive the value of the fiat currency down. In the U.S., for instance, this rate has historically hovered around 2%. This is different from Bitcoin, which has a flexible issuance rate which changes over time.
However, immediately the price rises to a level at which long-term investors are willing to trade, the scarcity of bitcoin will automatically reduce.