Many have questioned Bitcoin and crypto in general. They did not believe that something bigger than financial systems (banks) or the internet could be born. With all the attempts to stop Bitcoin from evolving or better said to stop people using crypto, with all the people in Government telling the public how risky it is to buy cryptocurrency, the utility of Bitcoin increased exponentially. Why? Because maths doesn't lie.
Pay attention to this explication and you will be as amazed as I was when I had my 'Ahaaa...' moment regarding Bitcoin.
The Magic Instrument
Fiat money has an infinite supply. They are printed more and more each year. More money means money loses its value because they are less rare.
There is a metric you must use when you do your analysis: Stock to flow The Stock Ratio assumes that scarcity drives value.
Stock to Flow= current stock of a commodity (i.e. circulating Bitcoin supply) / the flow of new production (i.e. newly mined bitcoins).
For Fiat Money:
S/F = 20.75 T / Infinite limit tends to a value of
For Bitcoin:
S/F = 19.4 M (changed each year) / 6.25 BTC ( halved each four years 3.125 BTC etc) tends to increase each year
Now you have the idea and I can tell that you are ready to predict the only tool you need before touching crypto: LIMITED SUPPLY.
Limited Supply
Bitcoin has a limited supply of 21 million coins. This scarcity is achieved through mining, where new bitcoins are created and released into circulation. The mining process becomes progressively more challenging over time, and the supply is designed to decrease over time until it reaches its maximum limit.
Limited supply is what made Bitcoin special. To understand why, you just need some basic economic concepts: supply, demand, and inflation.
Supply and demand are fundamental principles that shape the functioning of a market economy. They describe the relationship between the quantity of a good or service that producers are willing to supply and the quantity that consumers are willing to purchase at a given price.
refers to the total quantity of a particular good or service that producers are willing and able to provide to the market at various prices. It is influenced by factors such as the costs of production (including labor, raw materials, and technology), availability of inputs, and expectations of future prices.
Generally, as prices rise, producers have a greater incentive to supply more of the good or service because it becomes more profitable. This relationship between price and quantity supplied is known as the law of supply, which states that there is a positive relationship between price and quantity supplied, ceteris paribus (all other factors remaining constant).
represents the total quantity of a good or service that consumers are willing and able to purchase at various prices. It is influenced by factors such as consumers' income levels, tastes and preferences, the prices of related goods, and expectations of future prices.
When prices decrease, consumers have a greater incentive to demand more of the good or service because it becomes more affordable. This relationship between price and quantity demanded is known as the law of demand, which states that there is a negative relationship between price and quantity demanded, ceteris paribus.
refers to a sustained increase in the general price level of goods and services in an economy, leading to a decrease in the purchasing power of money. When inflation occurs, each unit of currency buys fewer goods and services than it did previously. Inflation erodes the value of money over time.
One of the main drivers for inflation is excessive demand relative to the available supply of goods and services. When demand outpaces supply, producers may respond by raising prices to maximize profits.
is a sustained decrease in the general price level of goods and services in an economy, increasing the purchasing power of money. Deflation is relatively rare.
Deflation can be caused by a decrease in total demand, technological advancements that increase productivity and lower production costs, or a decrease in the money supply.
Central banks, including the Federal Reserve in the United States, play a crucial role in managing inflation and deflation. What they have done in the past is just create more inflation by easing too much paper money, and increasing the debt.
Inflation is undesired, because the higher it is, the lower the value of your money decreases. Inflation and deflation are two opposite economic phenomena that describe the movement of overall price levels in an economy over time. This means that deflation increases the value of the money over time.
Bitcoin started with an inflation rate of 35% in 2008. At present, in 2023, the inflation rate is at 1.8%. This happens due to its schedule of bringing bitcoin into the network, the bitcoin economy. Miners were rewarded firstly with 50 BTC plus transaction fees. Every 4 years the BTC reward is cut in half and the difficulty for problem solving is increased in correlation with the hash rate activity (the power and capacity used by computers to find the nonce).
The release schedule (halving) of bitcoin is minimalized in half until it reaches 21.000.000 bitcoins in circulation in 214o, like this:
First 4 years: 10.500.000 coins
Next 4 years: 5.250.000
Next 4 years: 2.125.000 and so on….
Lowering the inflation rate makes Bitcoin have more value in time, increasing the costumers’ purchasing power (with the same amount of money in the present they can buy more goods and services in the future; in the present monetary and economic system the opposite is happening).
Bitcoin is more and more valuable as time passes, putting it on top of the strongest assets ever created.
You don't want to miss it!
