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Bitcoin Supply Shrinking - Powerful Catalyst for Long-term Price Support

Updated on January 4, 2018

Bitcoin supply will continue to shrink

Why the price of bitcoin will soar over the next 2 to 3 years

I believe all the naysayers about bitcoin are wrong, and their negative outlook, aside from self-interests, such as in the case of financial institutions, are based upon faulty premises and simply not knowing or understanding what it is that is driving the price of the cryptocurrency up.

For the most part, the reason bitcoin was created and is embraced by those that believe in it, is because it's considered a store of value, and an alternative to fiat money. Fiat money is a reference to currencies that have nothing backing them other than government promises, but lose their value because central banks continue to print or digitize money, which drives the buying power of the currency down.

For example, in the case of the Federal Reserve, it has caused the U.S. dollar to lose about 97 percent of its value since it was launched. People have tired of losing the value of their hard-earned money by central banks manipulating the money supply. That was much of the impetus behind bitcoin being created in the first place.

With global demand for money at this time standing at over $200 trillion, and bitcoin, as I write, having a market capitalization of a little over $250 billion, there is a lot of demand for it, and there will continue to be.

Supply continues to shrink as the demand for bitcoin rises. That's a scenario that will push the price of bitcoin upward as long as it lasts.

Bitcoin supply gradually decreasing

Bobby Lee, CEO of BTCC, a cryptocurrency exchange company, said in an interview with CNBC that ever four years the number of bitcoins rewarded drops to half.

“Every four years bitcoin the block reward goes down by half, we think there is a natural impetus for that to be more restriction and less supply.

“With less supply, the price seems to go up, especially with more investment in this area.”

Again, all of this is happening while demand for bitcoin as an alternative to fiat money rises.

Consequently, Lee sees the price of bitcoin continue to rise over the next couple of years, as daily supply drops to about 900 new coins a day. If history comes close to repeating itself, we're once again on the verge of a massive upward move in the price of bitcoin, which has happened "every three or four years" since it was created in 2009.

In early January 2018, the number of newly mined coins stand at 1,800 a day. About five years ago it was 7,200 a day. It also needs to be taken into account that at least 1.5 million bitcoin have been lost forever because of people losing their keys or even forgetting about when they bought them many years ago.

With hedge funds starting to spend millions on bitcoin, and the daily supply dropping to about 900 per day in a short two to three years, the price of the cryptocurrency is expected to explode by many.

A couple of pundits see it climbing to as much as $1 million per coin by 2020, including James Altucher and John McAfee, the latter being the founder of the antivirus software bearing his name.

In the short term, by which I mean the end of 2018, the higher estimates are it could climb from $50,000 per coin to $100,000 per coin.

The stages of growth associated with any new asset class

One of the more important things to understand concerning bitcoin and other cryptocurrencies, is they are an asset class. And as with any asset class, they have predictable and identifiable, stages or phases of growth.

I've written about a couple of them. If you prefer to read about them, take a look at the "Three Reasons Bitcoin and Cryptocurrencies Will Continue to Rise." It talks in-depth about how to identify the three stages of growth and what they mean for investing in bitcoin. At its basic level it's early adopters, smart money, and the masses.

If you prefer video, I've included the short video below which gives a quick look at the three stages. It also includes the reasons that drove the bitcoin developers to create it in the first place.

Video: Why Bitcoin and Cryptocurrencies Will Continue to Rise in Value

Four filters to put all cryptocurrencies through before buying them

Concerning all cryptocurrencies, and those that will appear in the future, I wrote about the four filters you should put them through to determine the legitimacy of the coin and whether it has a good chance at be accepted over the long term.

The four things to look at here are market demand, size of the network adopting it, quality of code behind it, and the development team.

Click on 'How to Know if a Cryptocurrency is Real, a Scam, or Worthless' to read parameters you need to know to identify quality cryptocurrencies, and if you want to view a video, I also have one below.

Video: 4 Tips to Identify if a Cryptocurrency is a Contender or Pretender

Conclusion

Unless a person thinks supply and demand don't apply to bitcoin, or that the demand for bitcoin is going to drop over the next 2 to 3 years, there's nothing visible that could reverse the upward move of bitcoin, although there will still be some significant corrections along the way, and eventually a bubble that bursts.

I consider that a positive for the cryptocurrency sector and bitcoin, as after the smoke clears and the crypto pretenders disappear, we'll get a strong look at the quality cryptocurrencies remaining, and be able to buy them a bargain prices. That's when the real money will be made by those looking to take a position in crytocurrencies and bitcoin.

That doesn't mean you shouldn't get in now, only be sure to read the articles above or watch the videos, while remembering, as this article points out, that the amount of bitcoins coming to market on a daily basis are going to continue to drop in number going forward.

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