Crypto, Unlike Stocks, Face Constant Dillution, This Will Always Lead to Continued Volatility Until We Enter the Age of Crypto Scarcity


This is something a lot of people who invest in crypto don’t understand. Bitcoin has a $900B market cap, worth ~$47k a piece. Every day ~900 coins are mined, meaning every single day, the market has to absorb ~$42mm to keep the price steady. At $3k last March, that number was ~$2.3mm a day. Over a month that means that the now has to inject $1.26B into the market just to keep bitcoin afloat. In times of growth, the market demand will be greater than that, but if it falls under that, if there aren’t enough people to pay $1.26B this next month into Bitcoin at 47k, it will fall. Stocks can dilute through new-issuance, but it’s usually a one-off event, not a constant daily stream like mining. This means any point of weakness in the market where people don’t want to buy at the current level will result in a drop, because miners are all in profit right now. They don’t care if it’s 60k or 48k, they want their fiat for that ROI.

Bitcoin mining is still a large % of total supply each year, even though it’s falling fast. In the future, the daily amount mined drops considerably further, to the point where it is a blip compared to the total market cap. Until that time though, any prolonged bull-run will be unsustainable, due to that fiat injection requirement for miners. So when you see Bitcoin go from 3k to 60k in 12 months, ask yourself whether the market can really sustain a 20x injection without some pullback. The age of crypto scarcity is coming, but it’s not here yet. Look around at how easy it really is to get crypto. Middle-class members of society can all afford a single BTC if they were to prioritize it, most of the developed world can afford a single ETH. This isn’t going to last. Even moons will become extremely scarce in the future, where today, a single distribution can get you in the 1/100k club.

For coins like Ethereum and BAT, or BSC or any coin that is non-inflationary, this doesn’t necessarily apply, but remember that the whole market is basically pegged to Bitcoin at this point. If Bitcoin tanks, Eth tanks, but this is why you need to understand tokenomics. If ETH can decouple from BTC, it should, in theory, be far less volatile. I think that the bullrun will continue, but know that any massive ramp-ups will always be met with pullbacks. A $2T market cap doesn’t mean that $2T has been invested in crypto, it’s a much smaller fraction of that. So that $1B in new Bitcoin each month is actually a far bigger driver than we realize.

submitted by /u/milehigh89
[link] [comments]