Before we begin exploring possible reasons for bitcoin’s upsurge, we have to acknowledge one factor. Bitcoin has a finite supply. There can only be a supply of 21 million bitcoins ever. It’s a crucial factor in understanding why bitcoin is rising in value today.
Now, we can never really know all the factors that contributed to its run-up to now. What we can do is speculate and reflect on the timeline of events since the beginning of the year that may be leading to the increasing prices we are experiencing today.
The following factors either contributed to bitcoin’s current prices or will contribute to its next run.
Shrinking Supply Of Bitcoin- More Hodlers
If you look at a recent Bitcoin chart, you will notice that as the supply of bitcoin is rising, its liquid supply decreases.
At the moment, 20% of the total bitcoin supply hasn’t been spent in over five years, which means it’s being held for the long term or is lost by forgotten private keys and passphrases.
It shows that the amount of coins available for spending (the liquid supply of bitcoin) is shrinking as the number of existing coins grows.
In about 330 days, the reward for bitcoin mining will be cut in half. But it’s not a phenomenon that is happening for the first time. So, let’s go back a few steps so we can understand what it means and its effect on bitcoin’s value.
When a miner or group of miners finish validating a block of the transaction, bitcoin is minted. You see, miners are like blockchain accountants, they verify transactions on the bitcoin ledger using their computers. Whenever they mine a block, they get paid 10.4 bitcoin. The coin is newly minted and didn’t exist before until the new block is mined. And that’s how bitcoin’s supply increases.
Now, the supply continues until 21 million bitcoins exist. And that’s where halvening comes in. It was an anti-inflationary function Satoshi Nakamoto created to make sure bitcoin value is never pushed down by its increasing supply.
Halvening is a positive catalyst. It decreases the supply of bitcoin and over time, less downwards pressure on bitcoin’s price.
Now that we know of the decreasing supply let’s examine the current demands.
Institutional Investors Coming In
Several financial institutions have had to change their earlier perception of Bitcoin. JP Morgan CEO himself called it a scam. That was a few years back, today he has loads of bitcoin, and JP Morgan is about to launch its own cryptocurrency.
There has been a steady rise of institutions considering venturing into cryptocurrencies. Fidelity is another example. The firm opened crypto custodial services in early 2019. They also surveyed institutions and found that 43% want cryptocurrencies on their portfolio.
You have to consider that if cryptocurrencies have captured the attention of one of the world’s largest corporations, then it’s got to be something.
And indeed its fantastic news for bitcoin, now retail investor’s everywhere want to venture. Bitcoin searches on Google are increasing. Retail markets are catching on as search volumes rise. Then FOMO kicks in.