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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…
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