Bitcoin’s Scarcity Value Bitcoin’s Scarcity Value

The limited supply within the Bitcoin framework is 21 million coins. When Bitcoin miners mine the last Bitcoin around 2140, no more new coins will be generated. While supplies of traditional commodities such as gold, silver and oil are limited, new reserves are discovered every year. These new discoveries make it impossible to accurately calculate their scarcity.

Theoretically, once it is completely mined, Bitcoin should become deflationary. Users losing or destroying Bitcoins causes the supply to decrease, driving the price up. Therefore, holders firmly believe that Bitcoin is extremely valuable in terms of scarcity.

Bitcoin’s scarcity has also given rise to the popular stock-to-flow ratio model. This model looks at annual mining volume and total inventory to try to predict the future value of Bitcoin. Backtesting has proven that it can simulate past price curves very accurately. According to the model, the scarcity of Bitcoin is the main driver of price. After untangling the underlying relationship between price and scarcity, holders realize the value of Bitcoin as a value-saving instrument. We explore this concept further at the end of the article