According to Ol profit reports, the economics of Bitcoin gets shaped by the supply and demand of the cryptocurrency. While the collection of the cryptocurrency is certain, its market is uncertain. The mining rate of Bitcoin is very predictable, and its supply gets restricted to 21 million.
Despite the spikes in the price of Bitcoin miners will never be able to procure more coins than the set amount. Moreover, the rise in the price of Bitcoin does not incentivize a surge in the rate of crypto mining.
The miners mine Bitcoin in a specific way to avoid reaching the hard and asymptotic limit of 21 million crypto coins. To delve deeper into the economics of Bitcoin, we recommend that you delve deeper into this insightful guide.
The economic theories of Bitcoin
The different aspects of the economics of Bitcoin are described below:
1.Inelasticity of supply
Bitcoin is more responsive towards any shift in its demand owing to its inelasticity of supply. The inelastic supply drives the appreciation in the price of the cryptocurrency.
In the first four years, the reserve of Bitcoin rose by around 2.5m per year. The cost of Bitcoin surged due to the rise in supply and the increase in the cryptocurrency’s user community.
Today, the stock of Bitcoin persists in its growth, but its pace has slowed down over time. Its demand dips and occasionally soars, thereby affecting the price trends of Bitcoin.
2.The demand drivers do not maintain transparency.
While the supply of Bitcoin is transparent, there seems to be an underlying opacity in Bitcoin’s demand. It appears that there is a rough correlation between the rise or fall in the price of Bitcoin and the rate of growth of Bitcoin transactions.
However, in recent times, it has been noted that there has been no rise in the number of transactions. This phenomenon is despite the plunge in the price of Bitcoin. However, there is a prominent relationship between the price of Bitcoin and the transaction costs.
With an eventual rise in the price of Bitcoin, the transaction costs increase as well. Declination in the price of Bitcoin puts downward pressure on the cost of the transaction, which often leads to a bullish trend in the Bitcoin market.
3.Bitcoin forking, incentives, and altcoins
The transaction validators and miners of Bitcoin receive rewards in Bitcoin for their services. These rewards determine the economic value of Bitcoin in the market. The recent forking of Bitcoin into Bitcoin Cash, a completely new cryptocurrency, also contributes significantly to the economic efficiency of Bitcoin.
The creation of Bitcoin Cash pumped up the volatility of Bitcoin that led to an increase in the prices of both cryptocurrencies. As of today, there are over 10,000 altcoins or alternative cryptocurrencies in the crypto market. These comprise mined cryptocurrencies, utility tokens, security tokens, and stablecoins.
Based on market capitalization, the two significant altcoins among these are Binance coin and Ethereum. Despite the popularity of altcoins, Bitcoin has a command over more than 50% of the crypto market. The supply of Bitcoin stays fixed, but there is no fixation on the reserve of cryptocurrencies, and this affects the economics of Bitcoin.
4.The application of the economics of commodities to Bitcoin supply
The miners of Bitcoin solve complicated mathematical problems for the creation of Bitcoin. The complexity of mathematical problems increases over time. As such, the electricity and equipment costs of mining Bitcoin also increase exponentially. This situation makes the economic aspect of Bitcoin similar to that of metals and other commodities.
The inelastic supply of Bitcoin increases the cryptocurrency’s volatility. The rise in volatility often draws in more members to the crypto community, thereby elevating cryptocurrency prices. For more information check this site cryptoengine.app Which is also a great platform to understand bitcoin prices and charts.
The perfectly inelastic supply of Bitcoin determines the economic trends of the cryptocurrency. An in-depth analysis of the demand and supply graph of Bitcoin, along with other factors, is essential for understanding the cryptocurrency’s economics.