Bitcoin digital scarcity and the Stock-to-Flow model

Prior to Bitcoin, digital scarcity did not exist. It is the first ever digitally scarce asset with a finite supply. No more than 21 million bitcoins will exist. The bitcoin code was developed by Satoshi with this hard cap supply. Further scarcity has occurred due to the lost coins in the early beginnings of bitcoin where a recent study by blockchain company Chainalysis suggests that around 4 million bitcoins may have been lost and cannot be retrieved due to lost wallet passwords and negligent diligence in bitcoin cold wallet storage. Understandably, there was less emphasis placed on bitcoin security and self-custody as each bitcoin was only worth a few cents and a vision for the value of what bitcoin has become today was only held by a minority of the btc community. Early speculators mined bitcoin and then sold for early profit, without having the hodl mentality that is synonymous with today’s investors and institutions that hold a long-term buy accumulation strategy. Only around 14 million btc of the 18 million btc that have been mined into circulation remain as active coins on the network. Bitcoin is a scarce asset, just like tangible assets like gold and silver. Gold is known to be a scarce asset, with a finite supply, but the actual supply is unknown and impossible to calculate. A fundamental benefit of bitcoin when compared to gold is that it can be moved over a communications channel, that being the internet where it is transferred peer-to-peer electronically over a global network.
PlanB@100trillionUSD has developed a bitcoin Stock-to-Flow model that attempts to value the price of bitcoin relative to its digital scarcity. The definition of scarcity is generally referred to something that is hard to get or not easy to find with a limited amount of supply. As precious metals like gold are expensive to mine and bring to market, so is bitcoin. You cannot forge the cost to mine gold or likewise the cost (electricity) to mine bitcoin. Scarcity of assets can best be described in relation to the stock-to-flow (S2F) ratio. That is the quantity of the asset that is available or held on reserve against the amount of that asset that is produced into circulation or the network on an annual basis. The higher the S2F ratio the more scarce the asset is in terms of the asset held on reserve to the supply that enters the market annually. Gold currently has a higher stock-to-flow ratio than bitcoin. However, the bitcoin s2f ratio will pass the gold s2f ratio at some point in 2022. It will bring a wider understanding of the btc digital scarcity fundamentals and add further urgency with investors to accumulate bitcoin as a store of value (SOV) asset either individually or invested in a bitcoin superannuation self-managed super fund (SMSF).

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