An Economist Explained why Bitcoin’s Fixed Supply Is Its Main Advantage

• Economist Saifedean Ammous sees Bitcoin’s fixed supply as an advantage, not a drawback.
• In his view, the growth of the leading cryptocurrency’s market capitalization and liquidity helps reduce its volatility.
• Over the long term, the expert expects bitcoin to evolve into a global monetary asset.

Economist and author of “The Bitcoin Standard” Saifedean Ammous published a detailed response to economics professor Lawrence White, who argues that Bitcoin’s fixed supply is the reason for excessive volatility that prevents the asset from being used as a medium of exchange.

In his post, Ammous challenged the claim that a monetary system needs an expanding supply when demand rises. He noted that gold’s historical advantage over other metals lay precisely in the limited ability to increase its stock.

In the economist’s view, bitcoin extends this property thanks to predictable issuance, the absence of industrial demand, and the lack of a centralized issuer.

“Why should the property that made gold better than other commodities become a drawback when bitcoin perfects it?” Ammous asked.

The expert emphasized that with a fixed supply, rising demand leads to an increase in money’s purchasing power. This allows the existing amount of the asset to support larger monetary balances without the need for additional issuance.

As an argument, Ammous cited World Gold Council data, according to which the average annual growth in gold stocks over the past 25 years was about 1.7%. At the same time, even significant changes in the metal’s price had little impact on its production volumes.

The economist also paid special attention to bitcoin’s volatility. He referred to research by Fidelity, Charles Schwab, and other organizations, which points to a long-term decline as the market matures.

According to the data he cited, bitcoin’s 252-day realized volatility fell to a level only 1.52 times higher than the same metric for gold.

Ammous believes that further growth in the leading cryptocurrency’s market capitalization and liquidity will help stabilize its price.

“I expect that further monetization of bitcoin will lead to an increase in cash balances, deeper liquidity, and lower volatility,” the economist said.

He also dismissed the argument that bitcoin’s limited use for everyday payments prevents it from becoming money. In his view, accumulating the asset to preserve purchasing power already represents one of money’s functions.

According to Ammous, bitcoin currently accounts for about 1% of global cash balances. He expects the leading cryptocurrency’s share to continue rising.

The economist believes that significant price swings are inevitable during the formation of a global monetary asset. However, once this process is complete, BTC’s value growth could become slower and more stable, reflecting the development of the global economy.

Earlier, Bitwise analysts noted that bitcoin is increasingly resembling digital gold amid shifting market dynamics. 

Fidelity also highlighted the role of volatility in assessing market cycles for the leading cryptocurrency.

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