Bitcoin And The Timing Of Stimulus
According to SOAX.com, the average person spends 2 hours and 23 minutes a day on social media. That’s a solid chunk of time and when it is multiplied by the number of users globally, it forms the basis for the significant valuations of related companies.
The statistic that is most often used to promote the adoption rate of cryptocurrencies is the number of open accounts. It currently stands at over 500 million. That is often used as an example of how much cryptocurrencies are being adopted.
Instead, it is a measure of how popular the asset class is. Most people don’t use cryptocurrencies for anything other than trading or hoarding. Talking about how people have accounts is an attempt to measure the volume of cash that has been poured into the asset class.
That highlights the sector’s role as a liquidity barometer. The price of bitcoin is heavily influenced by the volume of cash circulating the global economy. When central banks and governments massively increase global money supply, the price of bitcoin and other assets increases.
The opposite is also true. When global liquidity is constrained, the upward pressure on cryptocurrency prices abates.
The bitcoin four-year cycle depends on the halving of the reward for mining. Every time a halving occurs it doubles the cost of production. That both puts a floor under the price and emphasises there are only so many bitcoins that will ever exist.
I received this email from a subscriber which may be of interest:
Why does the limited supply argument for Bitcoin hold so much weight? Bitcoin’s total supply is capped at 21 million BTC, and each BTC contains 100 million satoshis, so 21 million × 100 million = 2.1 quadrillion satoshis (2.1 × 10¹⁵).
That's a whole lot of units and I haven't heard anyone address it properly.
It is true that if the price of bitcoin were to approach levels that approximate the size of the global economy, there would be no choice than to focus more on the value of a Satoshi. However, that is only really important if there is not enough supply to transact using bitcoin. That is not the case.
Even if the number of potential Satoshi is very large it is still finite. The weight of money argument as it applies to price is still relevant. Without a massive new source of liquidity, it is hard to make an argument for why a move to new highs will be sustained.
Limited supply has been a factor in the big bull trends in bitcoin. It has not been the only factor. QE1 2,3,4, the Trump tax cuts and pandemic splurge were also important factors.
We are currently in the most bullish seasonal time for bitcoin. The 500 days following a halving have generally coincided with major boosts to global liquidity. Is this time different?