Bitcoin’s supply is limited to 21 million coins, making it a rare digital asset.
Mining rewards are cut in half every four years, slowing the creation of new coins.
Massive gains in Bitcoin’s price haven’t necessarily closed the door for new long-term investors.
It may feel pointless to buy Bitcoin (CRYPTO: BTC) today. The original cryptocurrency rose to all-time highs near $115,500 last month. It has gained 88% over the last year, 400% in three years, and 40,440% in a decade.
With jumps like these in the rearview mirror, it must be too late to get started with this newfangled digital currency. Right?
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Well, that's true only if you don't think Bitcoin has a long-term future. That could be a big mistake, though. Bitcoin was designed to gain value against fiat currencies in the long run, and the economic model is near the start of a long runway.
Bitcoin's white paper describes two methods for adding monetary value to the cryptocurrency.
The computers running the system currently receive 6.25 Bitcoins when a data block is completed -- about once every 10 minutes. Generating the data blocks requires a lot of computing power and electricity, making the process similar to investing in land, work, and mining equipment to collect physical gold ore.
The rewards are halved after every 210,000 data blocks, or approximately four years. The fourth Bitcoin halving took place in April 2024, and the next should fall in March 2028. The rewards will eventually be smaller than the tiniest fraction of a Bitcoin that the system can use in transactions, known as a satoshi. That will be the end of Bitcoin creation, and all processing rewards from that point (around the year 2140) will come from transaction fees.
Image source: Getty Images.
There will never be more than 21 million Bitcoin in circulation. The real coin reserve is actually a bit smaller, as some coins are lost forever and can't be replaced.
So there's a strictly limited supply of Bitcoin. If demand for this cryptocurrency increases over time, the coin price should also rise. It's a basic supply and-demand calculation, further protected by the large investments already made in the Bitcoin mining infrastructure.
With Bitcoin exchange-traded funds on the market and rising institutional investments, Bitcoin looks poised for a long and wealth-building history.
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Anders Bylund has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.