We Are Watching the Pricing of Digital Scarcity in Real Time

Good Morning Everyone,

The topic of digital scarcity has been discussed at length in relation to Bitcoin. Plan B’s Stock-to-flow model does a good job of quantitatively modelling Bitcoins scarcity. To quote Plan B:

Surely this digital scarcity has value. But how much? In this article I quantify scarcity using stock-to-flow, and use stock-to-flow to model bitcoin’s value.

Approximately 7hrs ago at block height 714,000 the bitcoin network saw the percentage of supply issued, reach 90%. Bitcoin’s Genesis block was mined on January 3, 2009, at 18:15:05 UTC. Some 12 years after the genesis block was mined, only 10% of total supply now remains.

I’ve attached an image that shows the block height alongside the percentage issued below, taken from Clark Moody Bitcoin Dashboard, with a link attached.

You may notice the block height had not actually reached 714k yet in the image above due to a rounding error. As Jameson Lopp explained in a twitter post earlier today.

So without getting stuck in the weeds too much here, what we are witnessing is humans via the mechanism of free markets attempt to determine the value of digital scarcity for the first time in history, in real time. It feels like to me that this is quite something to be witnessing.

What is more, is that i do not think it has really hit home for the vast majority of people how insanely scarce this asset actually is. It is completely inelastic. This concept almost feels alien to us in the developed world in some respects. We have such a level of outrageous convenience in todays world, where it’s almost impossible for most to truly grasp. If we run out of food at home, we can just go to the shop and buy some more. We have a seemingly endless supply of movies and content thanks to platforms like netflix. This goes for most things that you can think of. The list goes on…

But with Bitcoin, not only is it the first, and only digital scarce asset ever, it is completely transparent in its issuance schedule. The entire world and every person on it, can access that information. It is not hidden, secretive, or governed by a central authority or only known to people with a certain level of access, power or influence.

It is completely open, public and programatically deterministic.

It is in the systems very nature to be this way. Completely by design.

So we know only 10% of Bitcoins total supply is left to be mined. We also know roughly how long until this remaining supply comes online. Although it is not until the year 2140 that the last bitcoin block reward will be issued, the vast majority will be mined well ahead of this point.

As you can see below, half the remaining supply (5%) will be issued in the next 4 years, between now and Dec 4th 2025. With 99% issued by 2035. Leaving just 1% of 21,000,000 to be mined over the next 100 or so years.

So in 14 years time, only 1% of all bitcoin will remain to be mined. There can never be any more created. We cannot deploy more resources and go out and find more bitcoin mines, like we can with Gold for example. This is it. And it is certain.

This means that after 2035 while miners battle it out for the final 1%, the only way to acquire bitcoin for the most part is to purchase it from someone else. And a significant % of people hodling bitcoin, aren’t selling. Ever.

To me this screams of a supply shortage like nothing we have ever seen before. The only way to acquire bitcoin will be for the price to continue to rise until it triggers supply from old hands to come on to the market and transact to new hands. That threshold will be different for different people obviously.

All I know is, that despite this information being fully public and transparent, i do not think at $47,000, the majority of individuals or investors have properly digested this reality. It is going to be very interesting to see how it plays out as the market, and the world tries to assign a price tag to the first and only, truly scarce digital asset in real time. It feels like a privilege to have a front row seat to see how this plays out.

As always, wishing you all the best and hope you have a great day.

AK

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