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The total production of bitcoins is limited to 21 million units. Historically, halvings have driven the coin's performance between 290 % and 8447%! This is remarkable for an instrument with zero nominal value.
Out of the 21 million available coins, a little more than 19.5 million bitcoins have already been mined. With the oncoming halving and the ever-lower number of bitcoins remaining to be mined, the context for a renewed and further price appreciation is given. That the market is moving forward is reflected in the fact that in early March 2024, the Micro Bitcoin futures volume increased to over 135’000 contracts.
The cryptowinter starting in 2021 was harsh for many investors. Patient investors though recovered the paper value of their assets. The Bitcoin price passed the previous all-time high earlier this year. In the last two months, the value is up over 50% which partly occurred on the back of an inflow of more than $6 billion that has entered the crypto market since spot bitcoin ETFs began trading beginning January with a daily average trading volume of $2.1bn; annualized this is about the size of Switzerland’s GDP.
Managing the supply chain Central banks have tools at their disposal that enable them to control the amount of currency in circulation. Technically speaking, a Central Bank has an unlimited capacity to issue liquidity into the system. Depending on the economic environment, the amount of money in circulation is more or less higher or more or less lower, and the amount of money in circulation is managed by Central Banks via bond purchase programs for Banks they supervise. Typically, when the rate of inflation is accelerating, Central Banks tend to sell fewer loans to remove surplus liquidity in the market.
In the case of Bitcoin, unlike with a Central Bank, the maximum amount of coins ever available is limited to 21 million. Technically speaking the available amount of coins to be mined remains at 1.4M units and halving means that an additional lot of 210’000 blocks enters the system, while the speed at which they can be obtained is being reduced by 50%.
Scarcity increases speculation for an instrument with zero nominal value Bitcoin investors are triggering a captivating behavior. Research suggests that investors formulate through investing in Bitcoin and other coins social power, societal status, higher self-consideration, respect, and envy from others. That status did not change during and after the pandemic. Interestingly, the research did not find a significant change when results were considered by groups of income, occupation, and age!
This is a stark contrast with historic investment and payment instruments. Up to now, holding a currency or stocks of a company was perceived as an expression of control that influences power-prestige and trust in the economic set-up of the country.
Investing in coins reflects a subjective norm that expresses money retention (security), distrust of the existing system, and personal anxiety. It can be expected that the ever-higher scarcity of Bitcoin increases the speculative feature against the backdrop of the potential economic instability of traditional markets.
Knowledge is power.
