2 charts that show why I’m buying Bitcoin now

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Cyclically, we once again find ourselves in the middle of a crypto winter. And as they have in previous crypto winters, critics and naysayers argue that Bitcoin (BTC 0.36%) is dead, that it can’t go back up, that it’s a Ponzi that is heading for zero and that he will never recover.

All of these blows to Bitcoin have happened since its inception in 2009, and yet all it has done since is continue a historic run and become the best performing asset in history. Bitcoin forces us to think about what money really is and how it works. Should the money be inflated at the whim of a government or a central authority? Is money just an idea or does it need to be backed by tangible assets? What makes one form of money better than another?

Bitcoin has been touted by some as an almost perfect form of currency. Even with its volatility, which is seen as a feature of new assets that eventually fade, there is reason to believe Bitcoin will rise again from the ashes and reward investors who are patient and hold on for the long haul. .

One of Bitcoin’s main characteristics as a sound currency is its inherent scarcity. A strict limit is ingrained in its code: there will only ever be a maximum of 21 million bitcoins in circulation. The only way to change that is if 51% of nodes running the Bitcoin network agree, and I don’t think that would ever happen. This is one of the crucial aspects that make bitcoin, bitcoin.

This limited supply argument has helped propel the price of Bitcoin over the past 14 years. Since 2009, Bitcoin’s demand has only increased, and it will likely continue as it remains resilient, proves to be a viable store of value, and people around the world seek out stronger forms of currency.

To better present the dynamics of Bitcoin supply and demand, consider the two charts below.

Graph n°1: Rise in demand

There are a handful of metrics that could be used to display Bitcoin demand growth. You may see graphs showing the number of active addresses (wallets that send or receive Bitcoins during a specified period), transaction volume, or other statistics trying to capture an overview of activity on the Bitcoin blockchain.

However, while I believe Bitcoin could eventually become a viable form of currency for day-to-day transactions, most investors who favor it today are drawn to it as a store of value. So, to capture its increased demand as a store of value, below is a table of all bitcoin addresses that currently hold at least 0.01 bitcoin – and it’s currently sitting at an all-time high.

Image source: Messari.

You will notice that the graph is displayed on a logarithmic scale. If plotted on a linear scale, the line would show a continuous ascent from left to right. Unlike line graphs that you may be more accustomed to viewing, logarithmic graphs are better suited for displaying wide ranges of values ​​or when you want to describe the rate at which something is growing.

As you can see, the number of addresses holding at least 0.01 Bitcoin increased the earliest in the history of the token, but since then it has continued to increase even in the midst of the current crypto winter. At more than 11 million today, that metric has grown 70% over the past five years and 3,000% since 2013. Let’s talk about demand.

Graph n°2: Outstanding supply

Now let’s look at the offer. The chart below shows the decreasing supply growth of Bitcoin. With only 21 million bitcoins expected to be created, there can only be a limited number to meet the appetite for increased demand, especially since around 91% of all bitcoins have already been created. extracts.

Image source: Messari.

Again, this graph is plotted on a logarithmic scale as it is more sensitive in showing the rate of change. Notice the difference in slope compared to the other graph? This is because the rate at which new bitcoins come into circulation is decreasing and will only slow down. Rather than being inflationary, Bitcoin is considered a deflationary asset – a great quality to possess for a store of value. Deflationary assets increase an individual’s purchasing power over time rather than decrease it. It is the exact opposite of almost all government-issued currencies.

There are approximately 19.25 million Bitcoin in circulation today, leaving only 1.75 million more to enter supply until around 2140 when the last Bitcoin will be mined. Since coin inflation is close to zero, Bitcoin could benefit from increased demand and limited supply in the future. Thanks to increased demand, the price of Bitcoin has skyrocketed over the past decade, and I believe it will soar again as it becomes scarcer. That’s why I’m a bitcoin buyer right now.

RJ Fulton has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.

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