Definition ∞ Bitcoin supply friction refers to factors that restrict the availability of Bitcoin for purchase or trade. This concept encompasses various elements that reduce the liquid supply of BTC, such as coins held in long-term storage by holders, lost private keys, or those locked in decentralized finance protocols. These restrictive forces contribute to a diminished circulating supply, influencing market dynamics through scarcity. The fixed total supply limit of 21 million Bitcoin inherently introduces a fundamental level of supply restriction, augmented by these additional factors.
Context ∞ The ongoing discussion surrounding Bitcoin supply friction often centers on its impact on price volatility and the long-term investment thesis for the digital asset. Analysts frequently examine metrics like coin dormancy and exchange reserves to assess the current degree of friction within the market. A critical future development involves how institutional adoption and new financial products might alter these supply dynamics, potentially increasing the amount of Bitcoin removed from active trading. Understanding these frictional elements is essential for comprehending Bitcoin’s market behavior and its store of value proposition.
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