One of the biggest arguments in favor of using Bitcoin (CRYPTO:BTC) as either a method of payment or a store of value is that it’s scarce. But what does that mean exactly? In this Fool Live video clip, recorded on March 18, senior analyst John Rotonti and Motley Fool Deutschland lead analyst Bernd Schmid discuss how many Bitcoins there are in existence and what investors should know about the supply of the cryptocurrency.
John Rotonti: Can you discuss the scarcity factor? Aren’t there like a maximum number of Bitcoins allowed?
Bernd Schmid: Yes.
Rotonti: Why does that matter? How does that factor in?
Schmid: The software essentially, that I was mentioning in the very beginning, which all these notes, this network is running, this has defined, there will be 21 million Bitcoins created, and then it will be finished. They are created by this mining process I described earlier. Every time you mine, a new block is being created, which happens on average every 10 minutes, 6.25 new Bitcoins are being created. There’s an algorithm which reduces this number every four years, more or less, until I think it’s in about 100 years when no more Bitcoins are going to be mined. This will be when you reach the 21 million Bitcoin, and that’s it. So why is this important or why is this the deal? I think right now, the main deal about it is that this is the argument for people saying, look, this is something scarce. Something which is scarce has a certain value. Look at gold. The amount of new gold that is being dug out of the ground every year is about 1-2% of the gold that has been dug out of the ground historically. It is relatively scarce. Actually, there’s somebody under the pseudonym PlanB, who has created a model, it’s called Stock-to-Flow. A Stock-to-Flow is what I just described, how much stock do you have and how much flow of new supply is coming in. For gold, this would be 1-2% per year. I think for silver, it’s in the 5-10% range. For Bitcoin, the 6.25 Bitcoin per block, it actually amounts also to about what gold is right now, 1-2% per year, and people ascribe value to it. I think this was a long story. I could’ve made it shorter, but to bring the point home is, people use this as an argument. Look, this is scarce, this has value. There’s a finite supply of it. You cannot just create it out of thin air like U.S. dollars. That’s why it’s useful buying that. You will later hear I think, today, if you listen to Michael Saylor of MicroStrategy, he will I think bring home this point.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
