Inelasticity of Supply
TL;DR
Inelastic supply means that no matter how much the price rises, you cannot create more of the asset easily.
What Is It?
- Elastic Supply (Fiat/Commodities): If the price of copper goes up, companies build more mines and create more copper. The increased supply eventually lowers the price.
- Inelastic Supply (Gold): Even if the price of gold doubles, it is very difficult and expensive to mine more. Gold has a high Stock-to-Flow Ratio.
- Perfectly Inelastic Supply (Bitcoin): No matter how high the price of Bitcoin goes, the mining difficulty adjustment ensures that only ~6.25 (and eventually 0) new bitcoins are created every 10 minutes.
Why It Matters
Because Bitcoin’s supply is perfectly inelastic, any increase in demand MUST translate into an increase in price. You cannot “debase” the currency by printing more to meet high demand. This makes it the hardest money ever discovered.
Comparison
- Fiat: Supply is perfectly elastic (Infinite).
- Gold: Supply is inelastic (Hard to increase).
- Bitcoin: Supply is fixed (Impossible to increase).