bitcoin Halving: Gold Is on Borrowed Time
For the first time since its creation, bitcoin's annual inflation rate is about to be lower than that of gold, the ultimate store of value. At a bitcoin block height of 840,000, bitcoin's annual supply will be halved, resulting in a decrease in its annual inflation rate from 1.7% to 0.85%. In comparison, the supply of gold is estimated to increase between 1 and 2% annually, depending on technological changes and economic conditions.
To date, bitcoin has experienced three halving events:
November 28, 2012: bitcoin's block subsidy decreased from 50 btc per block to 25 btc per block.
July 9, 2016: The second bitcoin halving reduced the block subsidy from 25 btc per block to 12.5 btc per block.
May 20, 2020: The third bitcoin halving reduced the block subsidy from 12.5 btc per block to 6.25 btc per block.
The next fourth bitcoin halving is projected to occur on April 20, 2024 EDT, and with it, the newly supplied bitcoin per block will decrease from 6.25 to 3.125 btc. At this time, a period of 210,000 blocks or approximately 4 years, the supply of bitcoin will increase by 164,250 btc (from 19,687,500 to 20,671,875), just 328,124 bitcoins from the maximum supply limit of 21 million.
<blockquote class="twitter-tweet”>
~94% of the total twitter.com/hashtag/bitcoin?src=hash&ref_src=twsrc%5Etfw”>#bitcoin The supply has already been issued and the halving is in 11 days
Digital scarcity at its finest pic.twitter.com/fjbLs1tq7r
– bitcoin Magazine (@BitcoinMagazine) twitter.com/BitcoinMagazine/status/1777351422431862829?ref_src=twsrc%5Etfw”>April 8, 2024
Gold throughout the centuries
A benchmark often used to underscore the store-of-value function is that the value of an ounce of gold matches the price of a “stylish men's suit” over time. This principle, known as the “gold-decent suit ratio,” dates back to ancient Rome, where the cost of a top-of-the-line toga was said to be equivalent to one ounce of gold. After 2,000 years, the amount of gold you would pay for a high-quality suit is still close to the price of an equivalent ancient Roman toga.
While gold has remained remarkably true to the expectation of getting its possessors a good men's suit over the years, the bright yellow metal presents its challenges.
For example, the cost of verifying (or analyzing) gold requires that it be dissolved in a solution or melted. This is certainly a challenge for someone who wants to buy everyday household items with their hard-earned store of value.
Furthermore, one could say that the cost and onerous nature of transporting and storing gold led to the demise of the gold standard. While certificates of deposit were historically redeemable for gold, the underlying commodity was often remortgaged, resulting in the infamous “Nixon Shock” in 1971, when the United States abandoned the gold standard for good.
This is not to mention the risks involved in obtaining physical gold, the physical nature of which again demonstrates a risk and responsibility in fulfilling its function as currency. Executive Order 6102 comes to mind, when then-President Franklin Delano Roosevelt banned “the hoarding of gold coins,” highlighting the unique challenge of properly and privately securing precious metals to store value.
bitcoin's transition from speculation to safe haven?
Initially considered a speculative asset due to its notable price fluctuations in the early days, bitcoin has increasingly been adopted as a store of value. Today, investors recognize its potential value and superior qualities as a monetary asset. bitcoin represents the discovery of digital scarcity while offering a variety of use cases far beyond those of precious metals.
As such, bitcoin has become a major force in the economy in just 15 years, reaching a market capitalization of $1.4 trillion as of March 13, 2024.
While this growth cannot be monocausally attributed to the fact that bitcoin satisfies the requirements of a store of value Better than gold, it is certainly promising. This “magic Internet money” continues to gain rapidly compared to the estimated value of gold. Market cap of $15.9 trillion.
The Monetary Qualities of Gold: Digitally Perfected
Scarcity: bitcoin has a finite supply of 21 million coins, making it resistant to the arbitrary inflation that plagues traditional currencies and the market-driven supply of precious metals.
Durability: bitcoin is an immutable, purely data-driven form of money. Its digital accounting system uses proof of work and economic incentives to resist any attempt to tamper with it, ensuring it remains a reliable store of value over time, barring unforeseen catastrophic risks. Given its informational nature, the ability to store bitcoin despite adversaries' attempts to prevent it is another positive monetary attribute.
Immutability: Once a transaction is confirmed and recorded on the bitcoin blockchain, it is incredibly difficult, although not impossible, to alter or reverse it. This immutability, derived from the geographic distribution of the network of bitcoin nodes and miners, is a critical feature. It ensures that the integrity of the ledger is maintained and that transactions cannot be altered or falsified. This is especially important in an increasingly digital world, where trust and security are paramount concerns.
Conclusion
The rise of bitcoin as a monetary good (predictable, free of terminal inflation and easily transferable) has helped it gain acceptance as a store of value among its holders. With the upcoming halving, its scarcity will exceed that of gold for the first time and will likely serve as a wake-up call for market participants seeking to avoid the burden of currency debasement.
While there are no certainties in life, and especially none in investing, the near certainty that bitcoin offers in its ability to maintain the integrity of its 21 million supply limit through its decentralized nature continues to drive adoption block by block. .
Gold had a good run. But, with the halving on the horizon, it's bitcoin's time to shine.
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