April 19, 2024
Greg Cipolaro

Research Weekly - The Impact of Fixed Supply Assets on User Behaviors


  • We inspect the behaviors encouraged by a fixed supply asset on the cusp of Bitcoin’s fourth halving.
  • We look at what has happened around past halvings and what might unfold around this one in a new research report.
  • Our quarterly webinar replay is now available, packed with valuable insights and impactful catalysts.

Fixed Supply Assets and User Behaviors

Bitcoin’s fourth halving is upon us today and rather than rehash the analysis from our halving report (see below), we wanted to instead present a thought experiment that highlights a key concept. This experiment requires no expertise in technology or economics; it simply focuses on the basic principles of supply and demand. We've noticed that technical and economic jargon often clouds the true essence of Bitcoin and its impact on users and investors. Our goal is to cut through the noise and provide clarity on this concept.

Imagine a scenario where there is a limited supply of an asset, one with demand steadily on the rise. With these dynamics in play, it's natural to see the price of this asset increasing over time. This scenario mirrors the essence of bitcoin.

However, there are some important points to consider. Initially, the supply of bitcoins begins at zero and experiences rapid growth, although this growth gradually decreases over time (following halving at a rate of 0.85% per year). The origin of demand remains unspecified, but it could be attributed to increasing awareness, expanding use cases, or other factors related to investment or exchange purposes. It is a common criticism that bitcoin has not fulfilled its original promise of being a medium of exchange. Nevertheless, even if we were to concede this argument, the value of bitcoin can still see significant appreciation solely based on its "store of value" or investment potential. Furthermore, as we will demonstrate shortly, the combination of a fixed supply and rising demand positions bitcoin as a much more favorable investment option compared to serving as a medium of exchange.

The inspiration for this entire thought process was sparked by a captivating Coinbase commercial (view it here). At its core, the fundamental question in the commercial revolves around the concept of “what if your money actually increased its purchasing power over time?” This stands in stark contrast to all fiat currencies, which diminish in value over time.

Envisioning a scenario where one anticipates their money to appreciate in real terms, increasing its purchasing power, naturally leads to a shift in financial behaviors. Rather than spending this money, one would lean towards accumulating or holding onto money, delaying expenditures. Forgoing that pizza today could mean enjoying two pizzas tomorrow for the same amount of money. The inclination to “invest” money, risking it to generate returns and boost purchasing power, would naturally diminish in such a scenario.

"Bitcoin Pizza Day," the upcoming celebration of the first-ever real-world bitcoin transaction for goods and services, serves as a powerful illustration of this phenomenon. Today, the 10,000 bitcoins that programmer Laszlo Hanyecz exchanged for two pizzas in 2010 are now valued at an astonishing $650 million. If amassing such immense wealth could be achieved by simply refraining from spending, what incentive would there be to spend beyond what was necessary to survive? Therein lies the friction with an asset that appreciates rapidly that also being used as a medium of exchange, like a traditional currency. Once again, it is Bitcoin's fixed supply that drives this unique dynamic, a phenomenon that is currently unfolding as Bitcoin enters its fourth halving.

Bitcoin’s Fourth Halving on Deck

This evening, Bitcoin will undergo an event seen only 3 times previously, a halving of its block reward. Also known as a “halving,” this event that is fundamental to Bitcoin’s economic promise of digital scarcity has been the subject of great debate and speculation. Earlier this week we released a report on the halving that examines what it means for price, network security, and the implications for miners.

Click here: LINK

Webinar Replay Available

Last week, we conducted a webinar delving into the key happenings of the first quarter and offering a glimpse into the future quarters. Packed with valuable insights ranging from market trends, regulatory updates, to upcoming catalysts, our webinar was a treasure trove of information (we are biased). With a duration of 45 minutes, we can’t highlight everything discussed in detail, so we invite you to click the link below for the replay.

Watch here: LINK

Market Update

The price of bitcoin tumbled nearly 10% this past week as stubborn inflation and geopolitical risks took the wind out of risk assets. Inflows into the ETFs have turned to outflows this past week as demand to the challenger ETFs have trickled down and GBTC stays steady. Two challenger ETFs, ARK 21Shares (ARKB) and Bitwise (BITB) have shown outflows on 3 days as well, a first for non-GBTC or BTCO (Invesco Galaxy) ETFs. Despite some public rhetoric that outflows from GBTC may have slowed down, that hasn’t been the case as investors pulled $579M from the fund in the past 5 trading sessions. We did see an updated registration statement for the Grayscale Bitcoin Trust Mini (BTC) this week, Grayscale’s response to competitive forces on GBTC. We now know some key details, like the 0.15% fee, which would make it the cheapest of the ETFs, excluding fee waivers and breaks. However, it is not clear when the fund could come to market as a 19b-4 has yet to be filed by NYSE Arca to list and trade the shares.

Against this macro backdrop of heightened geopolitical risk and stubborn inflation, diminishing the likelihood of rate cuts in the near term, other risk assets like equities also had a tough time. The S&P 500 fell 3.6% and the Nasdaq Composite tumbled 5.1%. Gold continued its winning streak, up 1.2% on the week, while oil fell 2.7%. Bonds sank on the inflation data despite the geopolitical environment, with investment grade corporate bonds down 0.9%, high yield corporate bonds down 0.8%, and long term US Treasuries down 1.1%.

Important News This Week


Hong Kong Gives Initial Approval for Spot-Bitcoin and Ether ETFs - Bloomberg

Bitcoin Mining Firm Foundry Plans to Redistribute Halving 'Epic Sat' Proceeds - The Block

Bitcoin Halving Has Crypto Miners Racing for 'Epic Sat' Potentially Worth Millions - CoinDesk

Bitcoin Spot ETFs Register Five-Day Withdrawals Streak Ahead of Halving - CoinDesk

Runes, Casey Rodarmor's New Protocol, Set to Go Live at Halving - CoinDesk

Regulation, Enforcement, and Taxation:

SEC Files Amended Complaint Against Justin Sun - Court Listener

Stablecoin Law Push Gets Surprise Boost from Crypto Skeptic Sherrod Brown - Bloomberg

U.S. Senators Lummis, Gillibrand Take on Stablecoin Legislation with New Bill - CoinDesk

Mango Markets Exploiter Avi Eisenberg Found Guilty of Fraud and Manipulation - CoinDesk

How a Crypto Compliance Officer Ended Up in a Nigerian Prison - NYT


Tether Advances Beyond Stablecoins, Introduces New Framework Embracing Core Divisions to Foster Resilient, Future-Ready Financial Systems - Tether

Cryptocurrency Exchange Kraken Acquires TradeStation Crypto - CoinDesk

Binance.US Taps Former New York Fed Compliance Chief for Board Role - CoinDesk

Circle Debuts Way to Trade Blackrock Tokenized Fund Shares for USDC - The Block

Upcoming Events

Apr 26 - CME expiry

May 1 - FOMC interest rate decision

May 15 - April CPI reading

May 23 - SEC response deadline for spot ETH ETFs

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