Recently, an analysis report that garnered nearly 5 million views on X argued that with the growing prevalence of cash-settled futures, ETFs, and similar financial instruments, Bitcoin’s (BTC) scarcity has become a thing of the past. According to the report, Bitcoin’s 21 million supply cap is now theoretically unlimited. This claim quickly sparked heated debate in the market. However, numerous crypto industry executives and researchers have pushed back, emphasizing that derivatives do not mint new coins and that Bitcoin’s scarcity remains firmly anchored in its underlying protocol. Drawing on Gate market data and industry perspectives, this article takes a deep dive into Bitcoin’s scarcity, halving mechanism, and current circulating supply.
The Core Debate: Do Derivatives Dilute or Transfer Scarcity?
At the heart of this debate is whether cash-settled futures and ETF "paper Bitcoin" markets undermine Bitcoin’s value proposition. Analyst Robert Kendall, who advanced this viewpoint, argues that once synthetic supply enters the equation, price becomes a derivatives-driven game, and the logic of fixed-supply valuation breaks down.
Kendall: Derivatives weaken Bitcoin’s scarcity. Source: Robert Kendall
However, this interpretation has been widely rejected by the industry. Harriet Browning, VP of Sales at institutional staking firm Twinstake, made it clear: when institutions allocate via ETFs and digital asset treasuries, they are not diluting scarcity, as Bitcoin’s total supply remains capped at 21 million. No new Bitcoin is being created. She added that these instruments are actually placing Bitcoin into the hands of long-term holders, rather than speculative traders.
The Gold Analogy: Paper Markets Don’t Change Physical Scarcity
To clarify this logic, analysts have drawn a parallel with gold. Luke Nolan, Senior Researcher at CoinShares, points out that gold has a massive paper market—its futures and unallocated accounts far exceed the physical supply—yet no one questions gold’s scarcity. Paper holdings do not affect the amount of gold underground, and the same logic fully applies to Bitcoin.
Bitcoin vs. Gold comparison. Source: TradingView
This comparison makes it clear: financial derivatives create a layer for exchanging ownership or risk exposure, but do not touch the underlying asset itself. No matter how large the trading volume of Bitcoin futures contracts, it cannot generate a single extra satoshi on the Bitcoin blockchain.
By the Numbers: Circulating Supply and Halving Support Scarcity
To understand Bitcoin’s scarcity, you must consider its built-in issuance mechanism—the halving. The Bitcoin protocol permanently caps supply at 21 million coins. New coins are issued as mining rewards, and those rewards are halved roughly every four years (every 210,000 blocks). The most recent halving occurred in April 2024, reducing the block reward from 6.25 BTC to 3.125 BTC, further slowing the rate at which new coins enter the market.
As of February 25, 2026, Gate market data shows:
- Bitcoin (BTC) current price: $65,572.9
- 24h trading volume: $1.23B
- Market cap: $1.31T
- Circulating supply: 19.99M BTC
- Maximum supply: 21M BTC
The data shows that approximately 19.99 million Bitcoin have already been mined. However, Nolan points out that this figure does not fully reflect the true circulating supply. On one hand, due to lost private keys and similar issues, it’s estimated that as many as 4 million Bitcoin have been permanently lost and are no longer part of the effective supply. On the other hand, with the large-scale purchases by spot ETFs and corporate treasuries, a significant portion of the supply is now locked up by long-term holders. According to Glassnode, as of last September, illiquid Bitcoin supply accounted for over 71% of all mined coins. This means the actual tradeable supply is much tighter than the headline numbers suggest.
In September, illiquid Bitcoin supply included 14.3 million BTC, over 71% of all mined Bitcoin. Source: Glassnode
Derivatives Change Price Discovery, Not Supply
If derivatives don’t change supply, why does the market feel that scarcity is being diluted? The answer lies in how price discovery has evolved.
Even Kendall’s critics acknowledge that Bitcoin’s short-term price formation is now heavily reliant on the derivatives market. Browning explains that derivatives influence spot prices primarily through three channels:
- Institutional Price Setting: Futures markets like CME and Gate have become the venues of choice for institutions to express bullish or bearish views. Institutional traders often position themselves in the futures market before acting in spot, thus dominating short-term price discovery.
- Hedging and Arbitrage Demand: Banks issuing Bitcoin-linked products typically buy spot or ETF holdings to hedge risk, creating indirect buying pressure. Meanwhile, hedge funds exploit price differences between futures and spot markets through basis trading, connecting both markets.
- Funding Rate Transmission: The funding rate mechanism in perpetual futures markets drives traders to arbitrage between spot and derivatives, channeling pressure from the derivatives market to spot.
Gate and CME lead in Bitcoin futures open interest trading. Source: CoinGlass
As a result, the spot market increasingly serves as a venue for settlement and inventory, while marginal prices are determined in the derivatives market through capital flows.
Conclusion: Code Is the Ultimate Law
In summary, the claim that Bitcoin’s scarcity is dead confuses the asset itself with the financial rights built on top of it. The halving mechanism continues to operate as designed, and the 21 million hard cap has never been compromised at the code level. While the booming derivatives market has indeed reshaped the price discovery process—making price swings appear disconnected from immediate spot supply and demand—it has not, and never can, create new Bitcoin.
Funds entering the market via ETFs and futures do not dilute Bitcoin’s underlying scarcity. In fact, by moving large amounts of supply into institutional custody, these instruments may actually reinforce Bitcoin’s role as a store of value over the long term. For investors, understanding this distinction is crucial: while market sentiment and price discovery may be driven by derivatives, the absolute scarcity of Bitcoin’s 21 million cap remains protected by the mathematical rules of its blockchain.
