Page 11

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Next: Section 4 – Tokenomics & Economic Model 

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4. Tokenomics & Economic Model – Bitcoin (BTC)

A. Token Utility (Use Cases)

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Bitcoin’s token utility has evolved significantly since its inception in 2009. Originally designed as a decentralized peer-to-peer (P2P) payment mechanism, Bitcoin (BTC) has grown to serve a much broader range of purposes, encompassing store of value, unit of account, medium of exchange, and increasingly, financial settlement infrastructure at both retail and institutional levels.

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This section explores Bitcoin’s use cases in a structured manner, highlighting the real-world economic functions that BTC serves across retail users, institutions, governments, miners, developers, and global markets.

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1. Store of Value (Digital Gold)

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Arguably the most dominant use case for Bitcoin is its role as a store of value (SoV)—a scarce, durable, portable, and verifiable asset similar to gold, but with enhanced digital properties.

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Key attributes supporting this utility include:

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Fixed supply (21 million BTC)

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Decentralized issuance

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Hard-coded monetary policy

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Censorship resistance

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Global accessibility

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BTC’s stock-to-flow ratio currently rivals that of gold and will surpass it after the next halving in 2024. As of March 2025, BTC’s stock-to-flow stands at approximately 56, compared to gold’s ~62. This scarcity, combined with increasing institutional acceptance, has made BTC a macro hedge against fiat debasement and a digital commodity standard.

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Gold comparison: https://www.galaxydigital.io/insights/bitcoin-vs-gold/

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2. Medium of Exchange

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While volatility and tax treatment in some jurisdictions limit Bitcoin’s widespread use as a medium of exchange, it is increasingly adopted for:

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Cross-border remittances

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E-commerce payments

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Micropayments via Lightning Network

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Real-time settlement for goods/services

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Bitcoin's Lightning Network has significantly reduced barriers for real-time, low-fee, micro-to-macro payments.

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Lightning-enabled payments:

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Strike: https://strike.me

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Wallet of Satoshi: https://www.walletofsatoshi.com

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BitPay: https://bitpay.com

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OpenNode: https://www.opennode.com

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Bitcoin’s effectiveness in hyperinflationary economies has also made it a default medium of exchange in regions like Argentina, Nigeria, and Venezuela.

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Chainalysis Regional Adoption Index: https://www.chainalysis.com/global-crypto-adoption-index/

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3. Unit of Account (Emerging Use Case)

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BTC is increasingly used as a unit of account in:

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Lightning microeconomies (e.g., gaming platforms like ZEBEDEE),

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Circular economies (Bitcoin Beach, El Salvador),

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Individual contracts in high-inflation environments.

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While USD is still the dominant global unit of account, the emergence of BTC-denominated goods and services points toward early monetization cycles, similar to pre-fiat commodity-based accounting systems.

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Bitcoin Beach El Zonte project: https://bitcoinbeach.com

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ZEBEDEE Gaming Platform: https://zebedee.io

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4. Collateral in Financial Markets

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BTC’s unique liquidity and neutrality position it as a non-sovereign form of collateral in various financial markets:

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Derivatives platforms (e.g., CME, Deribit)

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Lending protocols (e.g., Ledn, Unchained Capital, Nexo)

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DeFi applications via tokenized BTC (e.g., WBTC, tBTC)

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BTC is also being used as collateral for:

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Bitcoin-backed mortgages (e.g., Milo Finance): https://www.milocredit.com

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Institutional credit lines (e.g., BlockFi, Celsius, until restructuring)

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Tokenized BTC collateral protocols:

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WBTC: https://wbtc.network

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tBTC: https://tbtc.network

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This role as programmable, censorship-resistant collateral is increasingly valuable in a global deleveraging environment.

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5. Cross-Border Settlement and Remittances

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Bitcoin is disrupting global payment rails by enabling:

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Near-zero fee, 24/7 global settlement

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No reliance on correspondent banking networks

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Faster and cheaper alternatives to SWIFT, Western Union, MoneyGram

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Key remittance corridors using BTC and Lightning:

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Strike (U.S. → LATAM, Africa)

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Bitnob (U.S. → Nigeria)

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Paxful (peer-to-peer remittances): https://paxful.com

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Lightning in remittances: https://lightning.network

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Compared to the average 6.25% global remittance fee (World Bank), BTC often achieves sub-1% cost structures.

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World Bank Remittance Data: https://remittanceprices.worldbank.org

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6. Sovereign Reserve Asset and Legal Tender Use Case

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Bitcoin is now being integrated into sovereign-level financial architecture:

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El Salvador legal tender law and Bitcoin bonds

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Central African Republic BTC-based economic zone

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BTC is gradually emerging as a reserve diversification tool for countries exposed to dollar hegemony or inflation volatility.

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Bitcoin bond initiative: https://volcanobond.gob.sv

IMF critiques & reports: https://www.imf.org/en/Publications/WP/Issues/2023/06/15/Crypto-Assets-and-Financial-Stability-Risks-and-Opportunities-535318

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7. Wealth Preservation in Authoritarian Regimes

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For dissidents, activists, and citizens in autocratic regions, BTC represents a lifeline for secure, portable capital:

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Circumventing asset seizure,

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Avoiding bank censorship,

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Preserving wealth across borders.

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Human Rights Foundation (HRF) Bitcoin grant program: https://hrf.org/devfund/

Report: https://www.hrw.org/news/2022/01/13/why-crypto-critical-dissidents

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This utility is non-theoretical—it has already saved lives and enabled exits from collapsing economies.

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8. Layer 2 Smart Contracts and Programmability

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While Bitcoin is not Turing-complete like Ethereum, advanced smart contract functionality is possible via:

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Miniscript (programmable spending conditions): https://bitcoin.sipa.be/miniscript/

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Lightning-based smart contracts

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Taproot-enabled MAST structures

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These developments open new use cases for BTC in:

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Trustless escrow,

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Time-locked inheritance systems,

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Decentralized lending frameworks (under development)

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These protocols allow Bitcoin to retain auditability and security while expanding functionality.

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9. Use in Web3 and Tokenization Infrastructure

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Tokenized BTC (e.g., WBTC, tBTC) serves as a bridge to Web3 ecosystems, providing BTC exposure in:

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Ethereum DeFi protocols (Aave, Compound, Uniswap),

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NFT platforms,

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DAO treasuries.

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Wrapped BTC growth: https://www.defillama.com 

WBTC custodian: https://www.bitgo.com/wbtc 

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While synthetic, these instruments extend BTC’s financial reach across ecosystems.

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10. Summary: BTC Utility is Multidimensional and Expanding

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Bitcoin’s utility extends far beyond peer-to-peer payments:

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It serves sovereigns, institutions, communities, and individuals.

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It scales across retail payments, macro reserves, remittances, and programmable finance.

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It bridges old-world infrastructure (collateral, custody) and new-world paradigms (smart contracts, borderless finance).

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The Bitcoin token utility stack is additive, not replacement-based—each new use case enhances network value, not dilutes it. As new infrastructure layers mature, BTC’s economic function continues to expand with minimal protocol risk and maximum institutional relevance.

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References

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Bitcoin Whitepaper: https://bitcoin.org/bitcoin.pdf

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Stock-to-Flow Model: https://www.lookintobitcoin.com/charts/stock-to-flow-model/

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Gold Comparison: https://www.galaxydigital.io/insights/bitcoin-vs-gold/

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Lightning Network: https://lightning.network

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Chainalysis Index: https://www.chainalysis.com/global-crypto-adoption-index/

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Bitcoin Beach: https://bitcoinbeach.com

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ZEBEDEE: https://zebedee.io

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Muun Wallet: https://muun.com | Wallet of Satoshi: https://www.walletofsatoshi.com

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WBTC: https://wbtc.network | tBTC: https://tbtc.network

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Strike: https://strike.me | Bitnob: https://bitnob.com

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World Bank Remittance Report: https://remittanceprices.worldbank.org

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Milo Finance: https://www.milocredit.com

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El Salvador Bonds: https://volcanobond.gob.sv

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IMF Crypto Reports: https://www.imf.org/en/Publications/WP/Issues/2023/06/15/Crypto-Assets-and-Financial-Stability-Risks-and-Opportunities-535318

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HRF Dev Fund: https://hrf.org/devfund/

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Miniscript: https://bitcoin.sipa.be/miniscript/

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DeFi Llama (WBTC growth): https://www.defillama.com

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BitGo WBTC Custodian: https://www.bitgo.com/wbtc

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Next: Section 4B – Supply/Demand/Distribution Mechanics 

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Tokenomics & Economic Model – Bitcoin (BTC)

B. Supply, Demand, and Distribution Mechanics

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Bitcoin’s tokenomics are fundamentally distinct from those of most digital assets, primarily due to its non-discretionary issuance schedule, absolute supply cap, decentralized distribution model, and the absence of a centralized team or treasury allocation. These properties define not only the asset’s long-term monetary credibility but also the core engine of supply scarcity and demand dynamics that drive its market valuation and macroeconomic behavior.

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This section delivers a comprehensive analysis of Bitcoin’s supply mechanisms, demand growth dynamics, distribution trajectory, and how each element collectively constructs an economic feedback loop that sustains Bitcoin’s position as a monetary base layer.

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1. Absolute Supply Cap – The 21 Million BTC Limit

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The most foundational component of Bitcoin’s tokenomics is its mathematically enforced maximum supply limit of 21 million BTC, encoded directly in the protocol layer and enforced by full nodes running the Bitcoin software.

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Unlike fiat currencies or even most digital tokens that allow discretionary inflation or token supply manipulation, Bitcoin’s issuance policy is hardcoded and cannot be altered without overwhelming social consensus and protocol fork coordination, which would effectively be rejected by full nodes adhering to the original monetary rules.

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This supply ceiling is not symbolic—it is the bedrock of Bitcoin’s value proposition as a scarce, deflationary, digital commodity.

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The 21 million cap is enforced through:

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Block-level issuance mechanics,

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Halving schedules (coded into Bitcoin’s consensus rules),

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Hard consensus validation rules by nodes.

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Any miner attempting to issue more than the protocol-permitted BTC would have their block rejected by the network, making such a breach not only infeasible but economically self-destructive.

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Protocol specification reference:

Bitcoin source code (subsidy calculation logic): https://github.com/bitcoin/bitcoin/blob/master/src/validation.cpp#L1522

Bitcoin consensus rules overview HERE 

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2. Controlled Emission via Block Subsidy Schedule

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Bitcoin’s token issuance mechanism operates on a predictable, decreasing emission schedule, driven by a process known as the “halving”. Every 210,000 blocks (~every four years), the number of new bitcoins created and awarded to miners per block is reduced by 50%.

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Historical Emission Timeline:

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2009: 50 BTC per block

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2012: 25 BTC

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2016: 12.5 BTC

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2020: 6.25 BTC

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2024 (scheduled): 3.125 BTC

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This halving process continues until around the year 2140, when the last satoshi (smallest unit of BTC: 0.00000001 BTC) will be mined.

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This asymptotic supply curve mimics natural resource extraction economics—early supply is abundant and cheap, while later supply is expensive and scarce.

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Halving reference data

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Block reward schedule chart

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This predictable supply schedule creates a programmatic monetary deflation curve, setting Bitcoin apart from any other programmable or real-world asset.

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3. Fixed Supply with Increasing Scarcity Over Time

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As of Q1 2025, more than 93.3% of all bitcoins have already been mined, leaving less than 1.4 million BTC to be issued over the next 115 years. This is a monumental departure from traditional asset models, where new supply continues to enter the market via:

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Equity issuance dilution,

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Fiat monetary base expansion,

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Token treasury unlocks in crypto projects.

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Bitcoin’s continuously tightening issuance—against rising demand—creates naturally occurring supply scarcity, without needing manipulation from a central actor.

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Live circulating supply tracker: https://www.blockchain.com/charts/circulating-supply

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4. Cumulative Supply Curve and Market Impact

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Bitcoin’s supply curve follows a logarithmic issuance model, with the vast majority of supply already available on the market and the remainder dribbling out over the next century.

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This has profound implications for price discovery:

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Supply-side shocks are no longer based on new issuance.

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Market prices become demand-driven instead of inflation-suppressed.

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Each halving reduces the rate at which new coins enter the market, tightening liquidity further.

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The emission tapering curve increases the marginal cost of coin acquisition, compelling more sophisticated valuation frameworks beyond discounted cash flow models.

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Emission curve overview: https://charts.bitcoin.com/btc/chart/total-bitcoins

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5. Supply Distribution: No Central Allocation, No Pre-Mine

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Bitcoin was launched with no pre-mine, no team allocation, no venture capital tranche, and no ICO. The first coins were mined by the community using open-source software. Early miners received coins as a reward for validating blocks—not through privilege or funding deals.

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This contrasts starkly with most crypto tokens, which typically feature:

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Team and advisor allocations,

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Pre-sale allocations to investors,

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Treasury reserves,

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Foundation-controlled staking rewards.

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Bitcoin’s distribution model is considered the fairest genesis model in blockchain history, aligning mining with labor and cost, not insider access.

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Genesis Block data: https://en.bitcoin.it/wiki/Genesis_block

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Pre-mine comparisons: https://www.galaxy.com/research/insights/fair-launch-vs-pre-mine/

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6. Demand-Side Drivers: Multifaceted Demand Vectors

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Unlike utility tokens that rely on network-specific utility (e.g., paying for fees or staking), Bitcoin demand is driven by:

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Macroeconomic hedging demand (store of value)

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Capital flight and asset protection

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Monetary speculation and leverage trading

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Institutional allocation via ETFs, trusts, and treasuries

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Remittances and payment settlement

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Collateralization in lending markets

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DeFi tokenized BTC integrations

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Retail long-term savings adoption

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Each demand vector grows independently, feeding into a multi-channel, resilient demand stack that can absorb shocks from any one segment.

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BTC demand is non-linear, reflexive, and often intensifies during liquidity crises or inflationary episodes.

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7. Secondary Market Circulation and Liquidity Pools

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Although Bitcoin issuance is capped, its secondary market supply (BTC held on exchanges or moved by holders) determines near-term liquidity.

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Data shows:

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~13.5% of BTC is actively traded on exchanges.

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~68% of BTC is held unmoved for 12+ months (long-term holders).

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This indicates that most Bitcoin is not available for sale, intensifying price volatility during demand surges.

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Further, major institutional accumulations (e.g., ETFs, MicroStrategy) are removing float from circulation.

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ETF wallet tracking

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8. Lost Coins and Supply Shrinkage

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It’s estimated that up to 3–4 million BTC are permanently lost, due to:

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Lost private keys,

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Destroyed hard drives,

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Forgotten seed phrases,

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Dormant wallets.

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This “dead supply” further reduces real float and enhances the scarcity dynamics. While irretrievable, these coins are included in the circulating supply—introducing a hidden deflationary effect.

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Lost coin estimate reference: https://unchained.com/blog/how-many-bitcoins-are-lost/

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Thank you for taking the time to read this article. We invite you to explore more content on our blog for additional insights and information.

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