Why Bitcoin’s Fixed Supply Makes It a Strong Macro Asset

What Makes Bitcoin Valuable?

• Fixed Supply: There’s a hard limit on how many bitcoins can ever exist. This makes it scarce, like gold, and helps protect its value over time.
• Store of Value: Because of its fixed supply, many people use bitcoin to protect their money from losing value, especially when more money is being printed by governments.
• Global and Always Available: Bitcoin can be traded any time, anywhere in the world, and it’s the same everywhere. There are no business hours or borders.

What Is a Macro Asset?

A macro asset is an investment that reacts to big-picture economic trends, such as inflation, interest rates, or changes in the amount of money in the economy. Think of it like a thermometer for the economy: when the economy changes, the value of a macro asset changes too. Investors use macro assets to either protect themselves from these trends or try to benefit from them.

Why Is Bitcoin Considered a Macro Asset?

Bitcoin is called a macro asset because its price is mainly influenced by large economic factors, not by company profits or dividends like stocks. The price of bitcoin is driven by how much people want to buy or sell it (demand and supply). Unlike stocks, you don’t have to guess how much money a company will make in the future. Bitcoin’s supply is fixed-there will only ever be 21 million bitcoins—which makes it different from regular money that governments can print more of.

What Economic Factors Affect Bitcoin the Most?

1. Liquidity (Money Supply)

Liquidity means how much money is available in the economy. Economists often use “M2” to measure this. When more money is printed or released into the economy, people often look for places to put that money—including bitcoin. Studies show that bitcoin’s price has a strong positive connection with the amount of money in the economy. Over the last 10 years, bitcoin’s price moved closely with both U.S. and global money supply (with correlation coefficients of 0.83 and 0.86, which is very high).

2. Inflation Expectations

Inflation is when prices go up and money buys less than before. When people expect inflation to rise, they often look for assets that will hold their value. Bitcoin’s price is more closely linked to what people expect inflation to be in the future, rather than what inflation was in the past. For example, when long-term inflation expectations rose by 80%, bitcoin’s price went up by over 700%.

3. Other Factors

Bitcoin is less affected by things like interest rates (the cost of borrowing money) compared to other assets. The study found almost no connection between bitcoin’s price and 10-year real interest rates.

Is Bitcoin the Best Macro Asset?

Bitcoin is very sensitive to changes in the money supply, but so are stocks (like the S&P 500 index). In fact, stocks had an even higher correlation with money supply (0.94) than bitcoin (0.86). However, when the money supply increased, bitcoin’s price usually went up by a much larger amount than stocks. This means bitcoin reacts faster and more strongly to these big economic changes, even if stocks are a bit more closely linked to them.

Also, stocks depend on how well companies do in the future, while bitcoin’s value is based only on supply and demand. This makes bitcoin a “purer” macro asset, since it isn’t affected by company profits, taxes, or other business risks.

Why Consider Bitcoin?

If you’re worried about inflation or the value of your money going down because more money is being printed, bitcoin could be a way to protect your savings. It’s a unique asset that responds to big economic trends, especially increases in money supply and inflation expectations. While it’s not without risks, bitcoin has shown it can be a powerful tool for investors looking to hedge against these major economic changes.

 

The information provided in this content is for informational and educational purposes only and should not be construed as financial, investment, or trading advice. The author may hold positions in some of the securities or assets discussed. Past performance is not indicative of future results.