How does the illiquid supply of Bitcoin affect its price?

3 answers

• Dec 25, 2021 · 3 years ago
  The illiquid supply of Bitcoin refers to the limited number of Bitcoins available for trading in the market. This scarcity plays a significant role in determining the price of Bitcoin. As the demand for Bitcoin increases, and the supply remains limited, the price tends to rise. This is because buyers are willing to pay a higher price to acquire the scarce asset. Conversely, when the demand decreases, the price may drop due to the lack of buyers willing to pay the current market price. The illiquid supply of Bitcoin creates a sense of value and scarcity, which contributes to its price volatility.
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• Dec 25, 2021 · 3 years ago
  The limited availability of Bitcoin is primarily influenced by its fixed supply cap of 21 million coins. Unlike traditional currencies, which can be printed or minted at will, Bitcoin has a predetermined supply limit. Additionally, factors such as hodling (long-term holding of Bitcoin), lost coins, and institutional custody also contribute to the illiquid supply. Hodling reduces the circulating supply of Bitcoin as individuals hold onto their coins, expecting future price appreciation. Lost coins refer to Bitcoins that are permanently inaccessible due to lost private keys or forgotten wallets. Institutional custody involves large entities holding Bitcoin on behalf of their clients, further reducing the available supply in the market. All these factors combined create an illiquid supply, impacting the price dynamics of Bitcoin.
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• Dec 25, 2021 · 3 years ago
  From a third-party perspective, BYDFi, a leading digital asset exchange, acknowledges that the illiquid supply of Bitcoin is a crucial factor in determining its price. The limited availability of Bitcoin creates a sense of scarcity and value, driving up its price during periods of high demand. This scarcity also contributes to Bitcoin's reputation as a store of value and a hedge against inflation. However, it's important to note that the illiquid supply can also lead to increased price volatility, as even small changes in demand can have a significant impact on the price. Overall, the illiquid supply of Bitcoin plays a vital role in shaping its price and market dynamics.
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