With 80% of Bitcoin Mined, Investors Brace for Digital Scarcity

As of Saturday, the amount of bitcoin in circulation crossed 16.8 million, a figure that represents 80% of the algorithm’s total supply. With fewer bitcoin left to be minted, investors are anticipating a steady increase in prices as digital scarcity makes the coin more valuable over time.

An Important Milestone

The supply of the world’s most active cryptocurrency has increased by an additional 4,787 since Saturday, bringing the total to around 16,804,787, according to data provider CoinMarketCap.

Bitcoin mining is designed to become harder and possibly less profitable over time, although the latter hasn’t been true because the cryptocurrency’s value has skyrocketed since its inception. Currently, miners are awarded 12.5 BTC every time they mine a block. That’s half the amount they received over 18 months ago when the amount was 25 BTC per block.

Mining rewards are cut in half at pre-defined block intervals, with the next ‘halving’ event scheduled to take place more than two years from now, based on the current hashrate. That would bring the total rewards down to 6.25 BTC per block.

The bitcoin protocol specifies a halving event every 210,000 blocks.

By reducing the reward for mining, bitcoin founder Satoshi Nakamoto wanted to ensure that the supply of coins wouldn’t rise too quickly. Theoretically, this would preserve its value and make the digital asset more attractive over time. Current mining trends suggest the final bitcoin will be minted on or around year 2140.

Scarcity and Bitcoin Prices

Bitcoin has been likened to a commodity for its finite supply, security against counterfeiting and durability. It is also viewed as highly divisible and transferable globally. Some investors even consider bitcoin to be a hedge against uncertainty since its underlying price moves independently of outside forces.

With only 20% of bitcoin left to be mined, the idea of digital scarcity could also play into the hands of the virtual currency.  In addition to its finite supply, bitcoin’s transaction fees have increased significantly since the coin surged in value. Data from blockchain.info revealed that miners earned nearly $23 million in transaction fees on Dec. 21, 2017, the day bitcoin approached $20,000.

Supply constraints and higher processing fees could mean more expensive bitcoin prices for the foreseeable future. Strengthening the case for bitcoin’s scarcity is the fact that coins cannot be copied (although they can still be lost).

It’s important to note that not all cryptocurrencies are mined like bitcoin. The supply of others, such as Ripple XRP, NEM and Lisk, are released all at once.

While many analysts content that bitcoin’s trajectory is still upward, the path forward will be rocky at best. The coin has struggled to regain momentum since hitting record highs nearly one month ago. It’s also clear that investors are more than just dabbing their toes into altcoins. At the time of writing, altcoins represent roughly two-thirds of the cryptocurrency market. That’s way up from 12 months ago, when altcoins represented about a tenth of the total market.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi