Investors tend to poopoo cryptocurrency for its incredibly volatile markets. With volatility, though, comes drastically increased profit margins. In less-than-6-months, bitcoin has increase in value by more than 1,000%.
To many it’s a sure sign of a bubble. To others, it’s a unique chance to merchant token make a fortune in a short period of times.
But let’s step back for a second. Think about it in terms of economics. When you look at a supply and demand graph, you see that as supply increases, demand decreases. And as supply decreases, demand increases.
This is known as an inverse relationship.
Demand is created through something called “scarcity”. Scarcity means to be in short supply. Think about it like water in a draught. There’s little water available, and thus demand drastically increases.
On the flip side, rain during a monsoon is in extreme excess. And people want nothing to do with more water.
These are examples you see in real life, but let’s look at scarcity, in terms of crypto.
There will only ever be 21 million bitcoins mined. In the world, there are roughly 33 million millionaires.
Even if every one of those millionaires wants a whole bitcoin, it’s impossible. There are simply not enough bitcoins to go around.
Scarcity builds demand.
Now, in the United States (and other well-off countries), people don’t necessarily see bitcoin as anything other than an investment. But that mindset fails to take into account those who are affected by economic crises.
Consider Venezuela. They’re facing more than 4,000% of inflation. Their fiat currency is essentially useless. As of August 2015, there were about 450 companies that accepted bitcoin. In November 2016, there were more than 85,000 accepting the cryptocurrency.
That stat is a year old, and Venezuela continues to be plagued with an economic death spiral. So, the number is surely higher.
In fact, more than 100,000 miners have entered the game in the country. Bitcoin is more stable the Venezuela’s fiat, and thus is seen as a viable form of currency.