MILLIONS ADDED TO THE BITCOIN MARKET EACH DAY
PlanB has made several observations recently, most notably regarding the remarkable correlation between Bitcoin’s stock-to-flow ratio and its price. Most recently he explains that for Bitcoin to have maintained a value of USD $7k since October 2017, $400 million per month has been invested.
He has tweeted:
To maintain $7000 since Oct 2017, #bitcoin must have had about $400M new cash inflow every month last 2.5 years! (30d x 24h x 6blocks x 12.5btc x $7k assuming all trading is zero sum game)
After the halving, we only need $200M per month to keep $7k level. If $400M stays, then ???? pic.twitter.com/d6hYJqxIUr
— PlanB (@100trillionUSD) April 6, 2020
To clarify his claim, miners add 1,800 new bitcoins, most of which are sold, to the overall offer on a daily basis. If each bitcoin costs $ 7,000, then from October 2017, just over $ 400 million in new investment a month comes to market to keep the price from falling.
With this fact in mind, after the block halving takes place an additional $200 million will be added every day to Bitcoin’s market value should investor interest remain unchanged. Notable, however, is the fact that a rapid increase in price would likely draw in new investors as well, causing the price to spike even higher.
Such a large amount of new fiat moving into Bitcoin should have been more apparent. However, a number of factors could explain how it has gone unnoticed. For example, nobody knows the number of Bitcoins permanently frozen due to issues such as lost keys or wallet passwords. Also, the large amount of notoriously inaccurate exchange data could easily obfuscate Bitcoin’s true market cap.
ENTIRE BLOCKCHAIN SPACE COULD SOON CHANGE
A key takeaway from this observation is the fact that the impact of the reward halving will not be trivial. Removing 900 BTC per day from production will reshape the market dynamics that have governed Bitcoin’s value for the past four years.
Likewise, the last major bull run saw massive gains in the altcoin market. Platforms such as Ethereum and Ripple became much more valuable, and emerged as legitimate challengers to Bitcoin’s hegemony. Much has changed over the last three years, and the next big wave of investment could radically alter the role these cryptocurrencies play in the overall space.
There has recently been some concern over the lack of institutional investment in the crypto space. Nevertheless, given how much individual interest clearly exists, there is no question that the retail market remains strong.
Importantly, much more investment in the value of existing Bitcoins is all but certain to soon take place. Such a move could transform Bitcoin and other cryptocurrencies from objects of speculation into tools for real-world use.