- Long-term holders controlled most of Bitcoin’s supply.
- The supply ceiling and decentralized nature of Bitcoin worked in its favor.
Bitcoins [BTC] relative stability and resilience in the face of various market challenges have led to a dramatic shift in sentiment around the king of digital assets.
Read Bitcoin’s [BTC] Price forecast 2023-24
Bitcoin: the store of value
Bitcoin is no longer attractive to traders who used to flip the currency for quick profits, but has become the new savings option for seasoned investors.
According to on-chain analytics firm Glassnode, Bitcoin’s reserves on centralized exchanges have shrunk to depths not seen in the past five years. A large portion of them were locked into long-term holder (LTH) self-custody, as evidenced by the steady increase in their inventory.
Source: Glassnode
Long-term holders generally have a high risk tolerance. This group takes advantage of the bear market to increase their holdings of fundamentally strong assets and sell them into a strong bull market.
Therefore, the continued increase in HODLing implied that these players were betting on Bitcoin as a store of value or protection against inflation. But is the trust justified?
Bitcoin’s deflationary factor
A recent one report by crypto asset manager CoinShares tried to find merit in the above argument. One major factor that could work in Bitcoin’s favor was undoubtedly its scarcity.
According to economic principles, the scarcer an asset is, the more value it will acquire over time. Bitcoin’s supply is limited to 21 million, meaning that once the limit is reached, no more coins will enter the hands of the public.
The problem with traditional finance, as consistently emphasized by Bitcoin proponents, was that a central authority controlled the issuance of the currency and thus the money supply. Global central banks manipulate interest rates to stimulate or limit economic growth, depending on the state of the national economy.
For example, if the economy is sluggish, the central bank would reduce the cost of borrowing. This encourages spending and discourages saving because a person’s ability to use credit is greatly increased. As a result, domestic consumption increases and more money flows into the economy.
But while moderate inflation is good, high levels of inflation create even more problems for the economy. High inflation reduces the purchasing power of the common man. This meant that for the same amount of money the number of goods and services available to them would be significantly reduced.
Furthermore, during periods of high inflation, the national currency depreciates against the currency and the United States dollar (USD).
However, in the case of Bitcoin, the hard limit of 21 million is encoded in the source code and enforced by nodes on the network. As a result, arbitrary supply adjustments or tokenomics were ruled out.
The scarcity attribute thus puts Bitcoin in the league of proven inflation hedges like gold. Like Bitcoin, the precious metal is a limited resource and has acted as a safe haven during periods of economic stagnation.
Source: CoinShares
Bitcoin also meets these requirements
The other factor that gives Bitcoin the upper hand in the “digital gold” story is its sustainability. In its fourteen years of existence, the proof-of-stake blockchain has seen staggering uptime 99.98%.
The last time the network went down was about ten years ago. Therefore, network stability boded well for Bitcoin’s mainstream adoption.
Furthermore, Bitcoin is portable, in the sense that it is stored in a digital wallet and can be used anywhere. The ease of transport and convenience made the king coin an attractive savings option.
Delays in spot ETFs irritate participants
Bitcoin climbed above $27,000 for the first time in a week and settled down $27,051 at the moment of writing. The crypto’s 2.32% gain in the 24-hour period was accompanied by a slight jump in the price American stock market.
Other crypto-specific elements that could contribute to the growth were unclear at the time of writing.
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Meanwhile, the US Securities and Exchanges Commission (SEC) has once again postponed its decision on spot Bitcoin ETFs. Recall that TradFi giants like BlackRock and Invesco filed applications for Bitcoin ETFs in June.
However, the regulator postponed a decision at the end of August as the first deadline approached. The SEC has up to 240 days from the date of filing to approve or deny an ETF.