Of the many breakthroughs that Satoshi gave us with Bitcoin, its hard-capped supply and programmatic issuance have always been most captivating to me.
Unlike any other money the world has ever seen, it is impossible to create more of it than the supply schedule dictates.
New Bitcoins are issued every 10 minutes as ‘block rewards’ given to miners as payment for securing the network.
Roughly every four years (210,000 blocks), Bitcoin’s supply issuance is reduced by 50% in an event known as the ‘halving,’ which is set to occur this year around April 20.
The brilliance of this programmed scarcity can be explained with basic supply and demand economics.
Like any new technology, Bitcoin adoption increases with network effects.
As people around the world learn about Bitcoin and want to use it to store and send value to each other, demand for the asset increases exponentially as more people come to the network.
Meanwhile, on the supply side, the amount of Bitcoin being issued every four years is decreasing due to the halving event.
Miners are paid fewer Bitcoin per block and therefore have less to sell to offset their infrastructure costs of securing the network.
The current block reward is 6.25 Bitcoin (900 per day), which will reduce to 3.125 Bitcoin (450 per day) at the halving.
More demand seeking out decreasing supply brings price appreciation, as the only way to acquire Bitcoin is to increase the notional price and incentive for existing holders to part with their Bitcoin.
The SEC approval of the spot Bitcoin ETF and the ease for new capital to access the Bitcoin market has shown these supply and demand mechanics at work.
In less than two months, the Bitcoin ETF launch has shattered all historical precedence for the debut of an ETF product with the cumulative trading volume across all issuers surpassing $141.7 billion.
For perspective, Bitcoin ETF inflows over the past two months have exceeded inflows into all gold ETFs in the past five years.
Even more remarkable, the volume of Bitcoin acquired daily through the ETF is accelerating with net inflows for the week ending March 15, reaching a record $2.57 billion.
Since launch, the ETF has seen average inflows nearly three-and-a-half times larger than the cumulative daily block reward and ETF demand recently surged to seven-and-a-half times the cumulative daily block reward.
Extrapolating those numbers out post-halving, even with no further acceleration, and we’ll see ETF demand for Bitcoin 15 times larger than the new coins being provided by the network by the block subsidy.
As a result of basic economics, the increase of demand to the market with fixed supply issuance has dramatically impacted the price of Bitcoin, which has increased approximately 61% since ETF approval, at the time of writing, bringing the asset to new all-time highs in US dollar terms.
Appreciation of Bitcoin’s price works as its best marketing tool, as price increases bring more media coverage and more people talking, ultimately drawing more eyes and interest to Bitcoin.
The flywheel of adoption turns faster, resulting in even more price appreciation and the beginning of a new Bitcoin bull market.
While it drives headlines to make price predictions for Bitcoin based on the performance of other Bitcoin bull cycles, I believe such forecasts are misguided.
Never in Bitcoin’s history have we had buying behavior, demand and incentives that can be compared to what we’ve seen with these new ETF products.
Firms like Fidelity and BlackRock are not just using their massive marketing machines to bring their ETFs to customers they’ve placed them as baskets in their ‘all-in-one funds’ to boost returns.
These funds are automatically contributed to in vehicles like 401ks, IRAs and pensions, bringing a consistent buyer of scale to Bitcoin of the likes that we’ve never seen.
As these funds perform better as a result of Bitcoin’s inclusion, competing funds will have to follow suit to ensure they don’t lose their customer base and increase allocation percentages to bring greater returns.
Expecting Bitcoin price performance to act the same way it has in prior cycles with different participants is likely a mistake.
We have buyers who behave differently, and we won’t truly understand their impact until they’ve weathered another cycle or two.
While there will of course be leverage and speculation with any market cycle, I believe this time it is different.
We’ll see a cascade of corporates, institutions, governments and sovereign wealth funds enter the space as the ETF has brought the asset class both legitimacy and accessibility.
Firms like Microstrategy are showing the game theory Satoshi designed at work, as their first mover advantage to using Bitcoin as their treasury asset has brought a 333% return to the stock in the last six months.
Other CEOs and board members are taking note, with their compensation packages tied to stock performance, and there will be other dominos to fall as a result.
As Satoshi designed, this is basic supply and demand principles at work at a grand scale, and we’re watching the repricing of Bitcoin in real time.
The largest capital allocators in the world are now pawns in Satoshi’s game theory, not wanting to miss out on the first mover advantage to their peers that they’re measured against.
It’s a privilege to be a spectator in such fascinating times as the world wakes up to the significance of scarcity.
Mitch Kochman is the director of platform sales at BitGo, where he manages BitGo’s premier client relationships with exchanges, miners and payments platforms. He is predominantly focused and passionate about the Bitcoin-only ecosystem. Mitch has been with BitGo since 2022 and previously spent 11 years at IBM as a sales executive leading global software strategy at several major banks, the last of which being J.P. Morgan Chase.
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