MAY 4
The Supply Shock
When Fewer New Coins Meet More Buyers
The Signal
When more people want bitcoin and few holders are willing to sell, the price can rise sharply.
The Reading
Imagine waking up tomorrow to find that twice as many people want to own bitcoin. Some want a little. Some want a lot. People hear about it from friends, see businesses use it, and begin to ask whether they want some too. Where will the extra bitcoin come from?
Some will come from miners, who earn new bitcoin as they add blocks to the network. But every halving cuts the amount of new bitcoin they can earn per block in half. So even as more people discover Bitcoin and decide to own some, fewer new coins are being made. The growing crowd has to look increasingly to people who already hold bitcoin.
Now imagine most of those holders are happy to keep what they have. At today’s price, only a small amount is for sale. Buyers take up what is available, and those who still want bitcoin may be willing to pay more. A higher price can bring more coins out of savings as some holders decide it is worth selling. If few are ready to sell even at slightly higher prices, the price can move a long way before enough sellers step forward.
That is how a supply shock can take shape. The halving can be marked on a calendar. The squeeze becomes visible when the amount people want to buy at the going price runs ahead of what others are willing to sell.
First Principles
Bitcoin gives everyone a clear schedule for how new coins enter circulation.
Each halving makes every new batch of bitcoin smaller.
As more people want to own bitcoin, competition for the coins offered for sale can push the price higher.
Today’s Challenge
Hold up one hand. Imagine each of your five fingers is a bitcoin for sale today.
Now imagine ten people standing in front of you, each wanting one. Five get a coin. Five are still waiting.
Picture tomorrow’s queue getting longer while fewer new coins arrive. If the people who already have bitcoin want to keep it, what might the people still waiting be willing to pay?
Tomorrow’s Signal
The Demand Curve