According to a recent analysis by Fidelity, about 42% of Bitcoin's circulating supply might soon become a collector's item of sorts - not due to rarity, but thanks to becoming what they call 'illiquid'. So, by 2032, we could see around 8.3 million Bitcoin simply sitting pretty in digital vaults, not hitting the market. Is this scarcity theatrical or a genuine market maneuver? Let's dig in.
First off, Fidelity has sketched out a future where large swathes of Bitcoin are held almost permanently in two main cohorts’ digital clutches: long-term holders and beefy publicly-traded firms each with chests of over 1,000 BTC. With long-term holders not budging since 2016 and firms only recording one dip in their crypto stash last year, you’d think we’re setting up for a grand scarcity play - classic economics, supply down, price up, right?
Indeed, this is a rather intriguing market dynamic. By shoring up supply, it's presumed that the price of Bitcoin will see positive pressure. Yet, this hinges enormously on the continual demand for Bitcoin, a variable that has enjoyed its fair share of ups and downs. Fidelity’s chess move lays the groundwork for a price boost, but markets are rarely so obedient.
The idea of 8.3 million 'untouchable' Bitcoin by 2032 as projected by Fidelity is not just notable for potential price implications, but also for what it says about Bitcoin's maturing role as a store of value. This plays well into the narrative that Bitcoin is the digital gold of this era. However, a significant risk to this rosy scenario would be the actions of so-called Bitcoin whales, who might decide to cash in, thereby flooding the market and pushing the price downward. As reported, a whale sell-off is not a far-fetched scenario and could counteract the illiquidity-induced price hike.
Moreover, this forecast does not factor in new corporate players entering the market or significant geopolitical or economic shifts which could sway holding patterns. These uncertainties make the illiquidity scenario quite a gamble.
It's also worth considering the potential amplification of volatility in a market where a sizeable chunk of the total supply simply doesn't play the game. With less Bitcoin available for trading, even minor buy or sell orders could cause disproportionately high price swings, adding another layer of risk for the average investor.
Therefore, while Fidelity’s figures paint an intriguing picture of Bitcoin's future landscape, stakeholders should brace for a wild ride-less supply doesn’t necessarily mean less turbulence in the market. In this high-stakes game of financial musical chairs, the music isn’t stopping anytime soon.
