Bitcoin III

The total supply of Bitcoin is capped at 21 million coins. Bitcoin is an ‘open source censorship-resistant, peer-to-peer immutable network’. Bitcoin is trackable digital gold. Fiat currencies are prone to inflation and debasement given a non-fixed supply. Bitcoin has a fixed maximum supply – and is thus prone neither to inflation nor to debasement.

Fiat currencies are difficult to transact across borders. Bitcoin is borderless, permitting near-instantaneous, global transfer of value. Fiat currencies are access-limited to a particular country, controlled by a central authority (the central bank). Bitcoin is borderless and open-access. Fiat currencies are open to manipulation by the issuers. Bitcoin’s decentralised nature makes it resistant to manipulation.

Bitcoin's price is influenced by a complex interplay of factors, including its supply, market demand, regulatory changes, competition from other cryptocurrencies, investor sentiment, media coverage, and the cost of mining.

In 2015, approximately 0.2 per cent of the global population owned Bitcoin. Over the past decade, this figure has surged to 6.8 per cent. It's important to note that the total supply of Bitcoin is limited to 21 million coins. Question: Given that the supply is fixed and demand is increasing, what would likely happen to the price?

The price of any asset is directly influenced by its supply. Scarcity drives value – assets in short supply naturally command higher prices, while those in abundance tend to remain low. Currencies like the dollar or rupee can be printed in limitless amounts, diluting their value over time. In stark contrast, Bitcoin's supply is fixed, permanently capped at 21 million. This inherent scarcity gives Bitcoin a unique edge in the market, as its limited availability strengthens its potential for long-term value appreciation

Bitcoin's adoption has been particularly rapid in emerging markets. According to recent data, India leads the way with an estimated 75 million users, followed by China with 38 million. Other countries with significant Bitcoin adoption include the US, Brazil, Indonesia, Turkey, Argentina, the Philippines, Venezuela, Argentina, Lebanon, and Iran. This growing interest, particularly in regions with high inflation rates and limited access to traditional financial services, has contributed to Bitcoin's global appeal.

The launch of the Grayscale Bitcoin Trust in 2023 marked a significant milestone for Bitcoin's institutional adoption in the United States. The ETF's approval by the SEC signaled a growing acceptance of Bitcoin as a legitimate investment asset. This trend was further solidified in 2024 when Bitcoin ETFs experienced record-breaking net inflows of $20 billion in just the first 17 days of the year. Question: With a capped supply and rising demand, what impact would this have on the price?

Beyond individual investors, institutional entities have now started showing interest in Bitcoin. For example, Wisconsin's $155 billion pension fund has invested in Bitcoin ETFs, while companies like MicroStrategy, Tesla, and Galaxy Digital have made significant purchases of the cryptocurrency. This institutional adoption, combined with the limited supply of Bitcoin will solidify Bitcoin’s position as a valuable asset. Remember, supply is limited to 21 million coins.

Is the concept of Bitcoin as a strategic reserve gaining traction? With Bitcoin's capped supply of 21 million coins and growing institutional adoption, the demand for this scarce asset continues to rise. As adoption increases across both individuals and institutions, what impact will this have on Bitcoin’s price?

The writer is a columnist based in Islamabad. He tweets/posts @saleemfarrukh and can be reached at: farrukh15@hotmail.com