Bitcoin’s Scarcity: Can It Eventually Catch Up With Gold And Silver?
Bitcoin’s scarcity is one of its main characteristics. Moreover, industry experts and analysts consider that it’s among its strongest benefits. Some even consider that it will eventually allow Bitcoin to line up with other traditional scarce assets such as gold and silver.
Scarcity is the limited availability of a commodity which is in demand in the market. Perhaps the most popular scarce commodity is gold. It’s scarce because there is a finite supply of gold in nature and even though we don’t exactly know how much there is, we know for sure that it’s not unlimited.
Bitcoin is a digital asset – probably the most popular one. It’s also scarce because its protocol stipulates that only 21 million bitcoins will ever come into existence. More importantly, Bitcoin is the very first scarce digital object that we’ve seen.
Unlike gold or silver, however, Bitcoin can also be sent over the internet, which is a major differentiating factor.
Now, certain industry experts and analysts seem to believe that, eventually, Bitcoin will line up with gold and silver. Most recently, this was brought up by popular analyst PlanB who shared his hypothesis.
In a detailed publication, the analyst explains how he has come up with this hypothesis, using Bitcoin’s stock-to-flow ratio.
He describes stock as the size of the existing stockpiles or the reserves. Flow, on the other hand, is the annual supply of Bitcoin on the market.
According to Saifedean Ammous, a popular economist and author with a focus on Bitcoin, Bitcoin’s stock-to-flow ratio is going to overtake that of gold around the year 2022.
The existing stockpiles of Bitcoin in 2017 were around 25 times larger than the new coins produced in 2017. This is still less than half of the ratio for gold, but around the year 2022, Bitcoin’s stock-to-flow ratio will overtake that of gold.
The hypothesis in the study described above is that scarcity measured by Stock-to-Flow is a direct driver of value. Supposedly, as the ratio grows, the value tends to get higher as well. The analyst has come up with a model which puts Bitcoin’s market capitalization at $1 trillion after its upcoming halving in May 2020. Should this be true, the price per Bitcoin, factoring in the coins which will be mined by then, would be $55,000.
In the past week, we saw traditional markets tumbling mainly because of the growing trade tension between the world’s largest economies – the US and China.
What was more interesting, however, was the fact that amid economic turmoil of the kind, Bitcoin thrived. As Cryptopotato reported, the
cryptocurrency surged $700 as President Trump slammed another $300 billion worth of Chinese goods with a 10 percent tariff, propelling global markets in the red.
This caused many to believe that Bitcoin is steadily beginning to be seen as a potential hedge against times of economic uncertainties – a quality which was historically true for gold. Furthermore, some industry experts have even said that Bitcoin has a negative correlation with the traditional markets and the fact that it’s not correlated makes it a safe haven in situations of the kind.