Is a Bitcoin Supply Shock on the Way?

Bitcoin continues to grab many of the headlines in crypto, as the biggest token dominates the scene. According to some sources, recent movements in the market suggest that demand could soon outstrip supply and lead to a supply shock or squeeze. What would this involve, and how should we prepare for it?

What is a Supply Shock?

A supply shock typically occurs unexpectedly, when something happens out of the blue to either reduce or increase supply. This usually has an effect on the price, depending on whether the shock is positive (more supply = lower prices) or negative (lower supply = higher prices). The oil crisis in 1973 is arguably the best example of a negative supply shock, as OPEC cut oil supplies to several Western nations, causing prices to rocket and kick-starting a series of financial impacts such as soaring inflation.

The recent COVID-19 pandemic is another example, as it caused chaos in the global supply chain. This led to several essential items - such as medical supplies and food - becoming scarce. Most notably, the personal protective equipment used by medical staff was suddenly in short supply and extremely sought after.

Other examples could involve unexpected crop failure or natural disasters that cause a severe shortage of certain goods. We‘ve seen in the past when droughts have affected coffee harvests, while there have been several stories lately warning about a series of factors that could cause our beloved chocolate to become unaffordable for a lot of people.

Why Might This Happen to Bitcoin?

The interesting thing about a potential BTC supply shock is that it probably wouldn’t fit the “unexpected event” definition like most other historic cases. Crypto analysts have been warning about a possible lack of Bitcoin on the market for some time now, but is it really likely to cause a gradual negative supply squeeze that pushes prices up?

The key point here is that people are apparently buying and holding more tokens than those that can be mined. This study of the market suggests that the number of tokens being held for more than a decade is growing at a rate of 550 per day, which is quicker than the current mining rate of 450 BTC per day. A huge amount of Bitcoin is already effectively taken off the market, yet a huge buying pressure exists as more Bitcoin treasury companies and reserves are launched each day.

Let’s not forget that plenty of people still look for Bitcoin to spend and use, and there are a growing number of options for doing exactly this. Online casinos, for example, have become a very popular one. mBit Casino is one such platform that provides a range of crypto slots that can be played by depositing BTC or other leading tokens such as Litecoin and Ethereum. Players then choose from many different titles, including crypto-themed slots, like mBit Lucky Streak and mBit Mines, that include Bitcoin-type characters and images to add extra appeal. There’s little question that crypto slots have become popular, especially as you can play regular slots games with crypto.

This Mr Bitty video shows the main character has crossed over from the casino world to become a popular meme. This strengthens the links between crypto and casino games, giving a sign that the industry should continue to grow and attract more players who want to gamble with their tokens.

Anyone who wins on these games then has the option of betting again or sending their winnings back to their wallet. This means that these coins may continue circulating between players but without being sold on the open market for a long time. These casino games are one of the clearest examples of how we now use BTC in a variety of ways, with others including real estate purchases and online services.

It’s important to remember that the tokens aren’t always sold on the market once used, as a growing number of holders have decided to keep their BTC in their wallets for a long time. There are even offers - like this Coinbase card - that give users Bitcoin as a reward for spending and potentially taking more off the market.

What is the Best Course of Action?

The idea that Bitcoin is on course for a supply shock is certainly tempting, but we should bear in mind that it’s just one of many theories that exist in the crypto world. Some people will tell you that it’s going to $1 million by the end of the year, while others will insist that it’s on its way to zero.

We’ve been hearing about a possible supply shock for some time, with the amount of BTC on decentralized exchanges said to be dwindling fast and with over half of the world’s biggest banks now involved with BTC or other digital tokens. The best piece of advice is to do your own research and simply keep using the coin for what you want to. If you want to play games or buy things, there should always be enough Bitcoin or other coins to keep you happy.

The concept of the Bitcoin supply shock is a great example of the crypto world meeting traditional financial theories, but it still isn’t clear whether this will happen and, if so, when. For the moment, anyone who wants to buy some BTC can still easily do so.