• TennHedge

Why Is the Price of Bitcoin Going Up?

Bitcoin has been reaching new all-time highs recently, and many people who have either never heard of Bitcoin, or perhaps only faintly remember the digital currency from its wild 2017 run-up, are likely asking a simple question to themselves: why is the price of Bitcoin going up?


The most basic answer to this question is an economic one: the demand for Bitcoin is greater than the available new supply, which pushes the equilibrium price of Bitcoin ever higher. This situation is a universal economic law, that price is determined by the forces of supply and demand, which applies to every asset and market in existence - it is not unique to Bitcoin.


What is unique to Bitcoin is its supply, as Bitcoin is the only monetary asset in existence which has a hard-capped total supply, there will only ever be 21,000,000 bitcoins. The supply of Bitcoin is thus inelastic to demand, meaning when demand is high, it is not possible for the supply of new Bitcoin being mined to increase in response, as we see with silver and gold.


The issuance schedule of new Bitcoin was set in stone when the Bitcoin software was first released, new bitcoins are only issued when new blocks of transactions are created by miners, and the issuance is halved every 210,000 blocks in a 'halving' event. When Bitcoin was first mined in 2008, the issuance was 50 bitcoins for every new block. Today, the current 'block reward,' as it is called, is 6.25 bitcoins. By the year 2140, approximately, no new Bitcoin will be issued and the supply will be set for all eternity.


So now that we have covered the supply side of the Bitcoin price equation, what about the demand side?


Bitcoin is in demand because Bitcoin is sound money. What is sound money? Sound money, also sometimes called 'hard money,' is money that is difficult to debase, thus a money which has a purchasing power that stays flat or even appreciates, similar to gold.


Bitcoin is a sound money because it is scarce, there will only ever be 21,000,000 bitcoins. Gold has been the the historical store of value of choice for monetary goods throughout human history, primarily because it is very scarce/durable and it is difficult to add more gold to the current supply. The theoretical supply of gold, however, is infinite; conversely, the supply of Bitcoin has a hard cap, and is enforced by computer code.


Bitcoin is secured by the peer-to-peer Bitcoin network, a global network of computers running the Bitcoin open-source software which is the most secure, decentralized, and trustless monetary network on the planet. The amount of computer power and energy that is backing the Bitcoin network is immense, and growing by the day; moreover, this power and energy would have to be matched by an attacker to undermine the Bitcoin network, truly a nearly impossible prospect. As the Bitcoin network grows, it becomes more more decentralized, and its monetary policy becomes more resistant to attack.


Bitcoin transactions are virtually impossible to censor, you can send Bitcoin anywhere in the world in a very short amount of time, as short as 10 minutes, and there is nothing a government or central bank can do to stop that transaction due to the peer-to-peer nature of the Bitcoin network. A government can try to ban Bitcoin, but the only way to enforce such a ban is to snuff out every Bitcoin node in existence, a low probability event.


Bitcoin is the antithesis to fiat currencies, such as the U.S. dollar. The U.S. dollar has a supply that is boundless and is increasing at an ever-faster rate. The dollar has lost more than 95% of its purchasing power over the past 100 years, and the purchasing power of the dollar will be debased for the foreseeable future, as the government has to print more money to service the enormous national debt.


If you're new to Bitcoin, I hope this short article helped to illustrate some of the reasons why the price of Bitcoin continues to rise. Check out the URL's link on my site for more Bitcoin information, as well as the Who to Follow tab.


-TH


You should always consider seeking financial advice from a licensed advisor before making decisions with your money, and you should not consider anything I write as financial advice but merely my opinion. Getting your financial house in order is a prerequisite for Bitcoin saving, in my opinion.


Disclosure: nothing in this article should be considered financial advice and I am not a financial advisor. Do your own research as everything in finance carries risk.