Supply and demand

As with every product or service in the economy, increasing demand leads to a higher price, while a falling demand reduces the price. It is likely to state that factors that increase the usability of Bitcoin, either directly or indirectly, also increase its price. On the supply side, Bitcoin distinguishes itself because the supply is completely onelastic, insensitive to demand fluctuations.

While producers of most goods, including fiatic money and gold, increase their production with a rising demand to stabilize prices, an increasing demand for Bitcoin does not lead to an increased production of new bitcoins due to the adjustment in the mining diffulty. New Bitcoins are brought into circulation according to a predetermined issue schedule. Nobody can change anything about this and shows the power of the Bitcoin protocol. Bitcoin-Halvering, which takes place every four years and halves the new supply of Bitcoins, makes Bitcoin more scarce every four years.

How does the scarcity influence the price of Bitcoin?

The scarcity of Bitcoin has a considerable influence on the price, mainly because there is a hard limit on the total quantity that will ever exist - only 21 million bitcoins. In contrast to Fiatuututas, where central banks can print infinite money, the offer of Bitcoin has been established. This scarcity is reinforced by the way in which new Bitcoins are created through mining, which is designed to slow down the "production" over time through the halving. As a result, the limited stock exerts upward pressure on the price as the demand for Bitcoin increases. Although every halving in the past has led to a significant price increase, this is no guarantee for the future and it is a fact that the influence of the new "production" of Bitcoins is becoming less and less.

Issue schedule new bitcoins

Bitcoin's monetary policy is transparent and predictable because everyone knows exactly how much bitcoin are currently available and what the maximum number will ever be created. This transparency gives investors confidence, knowing that the value of Bitcoin cannot be watered down by unexpected increases in the offer. Bitcoin makes this well -known scarcity and predictability an attractive option for investors who want to protect their assets against inflation or monetary devaluation, whereby traditional currencies have been shown that they lose value (and therefore purchasing power) over time.

Thanks to a finite stock and a relatively small market capitalization, the price of Bitcoin is also much more sensitive to changes in demand, resulting in increased price volatility. In comparison, the creation and distribution of Fiatuututa is potentially infinite and unpredictable. Most central banks strive for relatively low inflation, but the actual inflation of fiatrisutas is almost impossible to measure. For example, the Federal Reserve (US Central Bank) strives for an inflation of 2%, even though the actual percentage is higher.

Inflation and deflation

Inflation occurs when the money supply or the speed of the money increases rapidly, which reduces prices and the value of the currency is reduced. In the event of deflation, there is a general decrease in the price level of goods and services within an economy over a certain period. This means that the purchasing power of money increases, because with the same amount of money more products or services can be purchased than before. Bitcoin is deflationary because of its finite offer. The finite range protects Bitcoin against hyperinflation. In the past, the possibility of a government to press an unlimited amount of currency has led to periods of hyperinflation that have driven the value of many Fiatuits to zero. Based on available economic data, the price of Bitcoin also appears to be influenced by the availability of liquidity on global capital markets. When more money is available, the price tends to rise in general.

This article was compiled by the BitStaeteInvestment Team. If you want to know more about the professional investing in Digital Assets, please contact us.