To the moon? Five microeconomic lessons from Bitcoin - Deepstash
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The supply of bitcoins in the world is capped at 21 million and, currently, about 18.7 million have been mined. The production of new coins is slowed every four years or so, with the number of coins minted upon completion of a block cut in half each time.

The limited supply is one of the things that makes Bitcoin attractive to many people. Decentralization means it is unlikely that any one person or group could gain control of the ledgers or enough of the currency to manipulate its value.


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While early adoption was limited by technical difficulties and legal gray areas, the increasing number of uses and public awareness has increased demand. The number of places accepting them has spiked in recent years and is likely to increase alongside institutional acceptance of the currency. As the usefulness of Bitcoin increases, so does demand for them, especially when access to banking is limited.

On the downside, a large amount of the demand for the coin continues to come from speculators who buy the coin in hopes of it increasing in value. Also, a fair amount of the demand is for questionable activity. 


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Countless other cryptocurrencies have entered the market. While it remains the dominant coin, Bitcoin's market share has fallen from 94 percent in 2013 to 64 percent in March 2020. Other major cryptocurrencies have different uses, but they often do overlap with the possible uses of Bitcoin.

Overall, Bitcoin benefits from network effects: it becomes more valuable as more people use it. Bitcoin still remains the foundation of much of the crypto market, which moves in tandem with it. 


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On putting eggs in one basket

One of the more popular uses of Bitcoin is as a gold-like store of value over the long-run. Claims that Bitcoin may someday be valued as high as $100,000 per coin are based on this idea of the coin as "digital gold."  

However, a number of studies have suggested that Bitcoin is a rather poor store of value, being subject to a fair amount of speculation and volatility and lacking the insurance other commodities have against theft or system failure.


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Volatility has causes, maybe

While Bitcoin is still subject to swings that would be eye-popping in other markets, this is an asset that does not behave quite like other, more traditional ones. As a result, the volatility of its price, which has dropped over the last few years, may not be a sign of the impending collapse of the coin's value but rather a feature of digital currencies.

Or, it may be something else entirely. It is still too new to even find much agreement on how to study the stuff


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