We all know how Bitcoin works. And it is that, the first cryptocurrency in the world was designed to limit the number of tokens that may ever exist. So they can only be mined up to a total of 21 million BTC. However, and although more than 18 million Bitcoins have already been mined today, a study by the Chainalysis firm would show that only 3.5 million Bitcoins are used in trading.
The limit on the number of Bitcoin that can exist is probably the best known feature of the cryptocurrency. Well, when Satoshi Nakamoto designed the virtual currency eleven years ago, he did it with the objective in mind of avoiding an inflationary crisis. The best way to achieve this is to set a limit on its emission.
Thus, Bitcoin would try to emulate the dynamics of gold in the world market. Since, one of the fundamentals in the value of gold, and its capacity as a reserve asset of value, is the limited supply of the precious metal. With an increase in the amount of gold that exists on the planet of less than 2% per year.
This growth is well below the average increase in monetary liquidity of fiat money. Which is subject to the discretion of the States, which can increase or decrease the amount of money in circulation to achieve their objectives. Even if that ends up damaging the population as in hyperinflation cases, among which Venezuela is only the most recent example.
Therefore, and to avoid that, Satoshi Nakamoto fixed the number of Bitcoin that will ever come into existence at 20,999,999.9796 BTC. A figure that is normally rounded to 21 million, and which represents the best inflation insurance that the cryptocurrency can have. Avoiding that an excess in the offer of the same affects its value.
There are no more than 3.5 million BTC in the trading market
However, the fact that there are around 18.6 million Bitcoin currently in circulation does not mean that all of them are on the market. In fact, only a small fraction of the Bitcoins issued are routinely traded in the cryptocurrency market.
And it is that, according to a report recently published by Chainalysis, about 60% of the existing BTC are in the hands of large financial entities (either investment firms or individuals), which have never sold more than 25% of the total of the Bitcoins they own.
Adding to another 20% of the total BTC that have not even been moved in the last 5 years, and which are rated by Chainalysis as lost Bitcoins.
Which would only leave around 3.5 million Bitcoin used in the exchanges for trading operations. An estimated 340,000 people currently participate in Bitcoin trading each week. Being 96% retail traders with less than 100,000 BTC in their accounts.
“The data shows that most of the Bitcoin is in the hands of those who treat it as digital gold: an asset that must be maintained in the long term (…) But this digital gold is backed by an active trading market for those who prefer to buy and sell frequently” Chainalysis comments in the report.
In this way, the millions of Bitcoin that are currently outside the trading market, would become an important potential source of liquidity. Especially after the decrease in the rate of increase of the BTC money supply from the third Halving of Bitcoin.