This year saw Bitcoin enter its next reward era. This means that the new market supply rate has been cut in half to only 6.25 Bitcoins every block—an event that occurs approximately every 10 minutes. With 90% of all Bitcoins already mined, the remaining supply is estimated to take nearly 120 years to come to market. This figure—the remaining 10% taking another 120 years—shows just how scarce the cryptocurrency already is.

Liquidity is likely to be burdened by derivatives that can fill market demand gaps as physical Bitcoins become harder to come by. And most recent market activity due to the coronavirus that interrupted the supply chain of gold can give a glimpse of what potential scenarios might play out in the future for Bitcoin.

Zubr looks at the supply dynamics, retail, and institutional demand of the world’s largest cryptocurrency, and how derivatives and spot trading could face contango during times of market stress as Bitcoin looks to displace gold as the global store-of-value.

While many have become well aware of Bitcoin’s limited supply, the dynamics and numbers are always good to be restated, not for effect, but context when assessing the supply and demand nature of a true store-of-value asset class, which the cryptocurrency is gunning to be.

When Bitcoin’s first block was solved, what is known as the ‘Genesis Block,’ the miner (the unknown Satoshi Nakamoto) was rewarded with 50 Bitcoins. The creator of the cryptocurrency designed the inflation rate to emulate the new supply of gold coming to the market. As such, every four years, the new Bitcoins that are minted after every solved block and rewarded to miners for their equipment investment and energy use decreases by half. That is until twenty-one million Bitcoins are created, at which point there will be no longer any new supply.

Twenty-one million may sound a lot. But when one begins breaking down the numbers as of our current point in time, the picture becomes a lot clearer as to why Bitcoin enthusiasts are very true to their holding and never-selling nature.

Before this decade is over, only 225 Bitcoins will be minted per day and enter the market as fresh supply. In comparison to the start of this year—when 1800 Bitcoins were being created per day—this means a near 90% loss in new supply within the next eight years alone.

For those who believe in the cryptocurrency’s attributes as being a store-of-value, this supply squeeze is indeed a big deal. And there is data, if not proving, at the very least pointing out that Bitcoin isn’t only a speculative investment even among retail and smaller investors.

Data provided to Zubr by Chainalysis, the blockchain, and market analytics firm, shows that there is a true intrinsic belief in retail holding Bitcoin for the long haul.

Looking at the data through an investor’s lens, the data obtained from Chainalysis was to see whether or not there is a growth in addresses that could be viewed to be as intentional holdings by rounding up the number of Bitcoins being stored on-chain. The dataset shows that there is continuous growth in purposeful Bitcoin investment holdings regardless of price, month-on-month, and year-on-year.

At the start of June 2020, over 215k addresses/entities had rounded Bitcoins (1, 2 up to 10). These addresses have only continued to grow. For example, despite global markets tumbling and, along with it, Bitcoin’s price, these precise rounded addresses have grown by 11% since the start of the year and have yet to see a single month in decline. These addresses that fall within the category of rounded stored Bitcoins haven’t seen a single negative month since April 2019.

In fact, since genesis, the number of Bitcoins held in these addresses has only gone down a total of five times month-on-month.

In April 2020, addresses holding exactly 1, 2, 3, all the way up to 10 Bitcoins, had surpassed 500,000. These addresses have been growing every month since the start of the 2018 bear market after the price of Bitcoin hit its peak with the exception of a single month (see chart). The value of these on-chain holdings at the start of June 2020 breached the $5bn mark for the third time ever.

A fair argument to make as of today is that these addresses and total Bitcoin held only account for 2.5% of the total circulating supply. With that being said, however, the annual average growth rate year-on-year for these specific addresses alone has increased at a steady 1 to 1.5% since 2014.

Extrapolating future demand at this pace points to a very dramatic shift in 2028 when Bitcoin’s supply rate further decreases, and these retail-sized addresses begin to eat up all the new supply alone (see chart). By the time the next reward era comes around in 2024, retail could potentially account for consuming over 50% of the physical supply.

Although Bitcoin remains in its infancy in comparison to gold and equities markets, the data shows that cryptocurrency believers have stayed true to their belief in it as a real store-of-value despite its infamous price fluctuations.

As Bitcoins are trackable—at least in terms of address holdings—it will be essential to continue looking for trends in where the supply is going. With the supply limits known, new Bitcoins through the mining reward might become fully absorbed by retail investors unless price heavily weighs in over the coming years. This would also mean that the bands assessed in this research shift down to addresses with 0.1, 0.2 Bitcoins, and so forth.

As Bitcoin’s supply becomes increasingly scarce and retail demand continues to grow, the comparison to gold intensifies. Unlike gold, where technological advancements have led to a rise in production, Bitcoin’s supply mechanism ensures a finite amount, with the halving events continually reducing new issuance. This scarcity, combined with consistent growth in retail holdings, suggests that Bitcoin could increasingly fulfill the role of a store-of-value asset, potentially overshadowing gold in the long term. As institutional interest strengthens and market infrastructure evolves, the path for Bitcoin to displace gold as a primary store of value may become more apparent, driven by both technological and economic dynamics.