Bitcoin [BTC]: How inflation and adoption will contribute to this “shock”.

The first quarter of 2022 was eventful, especially due to the economic and geopolitical factors that severely suppressed the cryptocurrency market. However, some of these events also speak to a potential bitcoin supply shock, championed by analysts like Lark Davis.

There are a few factors that can fuel strong demand for BTC. Especially since the price action has improved significantly lately.

In fact, one of Davis’ latest tweets noted that countries, cities, banks, hedge funds, sovereign wealth funds, billionaires, and corporations are all interested in Bitcoin. He believes this interest will grow rapidly and potentially trigger a bitcoin supply shock. Such an opinion is also based on the notion that institutions are no longer ignoring the potential of Bitcoin.

Stock market outflows give us a healthy take on the level of demand that the cryptocurrency has seen over the past few months. Most outflows have been moved to private wallets, possibly indicating long-term positions. These outflows also coincide with higher levels of inflation in key global markets.

Source: Santiment

Why inflation could be the biggest contributor to the supply shock

Inflation has been the biggest rift in the traditional financial system to date. It was angered by the economic pressures that forced the Federal Reserve to print more money to boost the economy during the pandemic. Unfortunately, mopping up this excess liquidity has become a challenge and underscores the need for sound money that is immune to inflation.

Bitcoin presents itself as an alternative that individuals and institutions can use to overcome inflation. Such views can fuel bitcoin demand and contribute to a supply shock, especially given the dwindling supply on exchanges.

Source: Glassnode

It should be noted that opinions are not uniform. For example, one user suggested that a lack of new investors to absorb the additional supply would likely cause the price to crash. However, this argument fails to take into account the factors driving Bitcoin adoption, such as its fixed maximum supply, Bitcoin halving, and its deflationary characteristics.

Governments and Monetary Control

Recent social and political events such as the standoff between truckers and the Canadian government and the war between Russia and Ukraine have highlighted the dangers of tight government money controls.

These factors strengthen the case for owning Bitcoin as censorship-resistant money that offers freedom from government interference. Demand for bitcoin resulting from the above insight could encourage greater institutional and individual bitcoin adoption.

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