Bitcoin Halving: Gold on Time
For the first time since its inception, Bitcoin's annual inflation rate is expected to become lower than the inflation rate of gold, the ideal store of value. When the Bitcoin block hits 840,000, the annual supply of Bitcoin will halve, causing the annual inflation rate to fall from 1.7% to 0.85%. In comparison, the supply of gold is expected to increase by 1-2% annually, depending on technological changes and economic conditions.
So far, Bitcoin has seen three halving events:
November 28, 2012: Bitcoin block support decreased from 50 BTC per block to 25 BTC per block.
July 9, 2016: The second Bitcoin halving reduced block support from 25 BTC per block to 12.5 BTC per block.
May 20, 2020: The third Bitcoin halving reduced block support from 12.5 BTC per block to 6.25 BTC per block.
The next fourth Bitcoin halving is expected to take place on April 20, 2024 EST, and with it, the newly supplied Bitcoin per block will decrease from 6.25 to 3.125 BTC. This era – a period of 210,000 blocks or approximately 4 years – will see the supply of Bitcoin increase by 164,250 BTC (from 19,687,500 to 20,671,875), i.e. just 328,124 BTC out of a maximum supply of 21 million.
~94% of the total #Bitcoin The offer has now been released and is halved in 11 days 👀
Digital scarcity at its best 🚀 pic.twitter.com/fjbLs1tq7r
– Bitcoin Magazine (@BitcoinMagazine) April 8, 2024
Gold throughout the ages
One criterion often used to confirm its store of value function is that the value of an ounce of gold matches the price of a “fine gentleman’s suit” over time. This principle, known as the “gold to decent suit ratio,” can be traced back to ancient Rome, where the best toga was said to cost the equivalent of an ounce of gold. 2,000 years later, the amount of gold you would pay for a high-quality suit is still close to the price of an ancient Roman toga.
While gold has remained remarkably true to the expectations of purchasing a fine men's suit for its wearers over the years, the bright yellow metal comes with its challenges.
For example, the cost of checking or screening gold requires either dissolving it in a solution or melting it. This is certainly a challenge for someone who wants to purchase everyday household goods with their hard-earned store of value.
Additionally, the cost and cumbersome nature of transporting and storing the gold itself arguably led to the demise of the gold standard. While certificates of deposit were historically redeemable in gold, the underlying commodity was often remortgaged, leading to the infamous “Nixon Shock” in 1971, when the United States left the gold standard for good.
Not to mention the risks that come with securing physical gold, its physical nature once again proving to be a risk and a liability in serving its function as a currency. Executive Order 6102 comes to mind, when then-President Franklin Delano Roosevelt banned “gold coin hoarding,” highlighting the unique challenge of properly and discreetly securing precious metals for a store of value.
Is Bitcoin moving from speculation to safe haven?
Initially considered a speculative asset due to its notable price fluctuations in the early days, Bitcoin has been increasingly adopted as a store of value. Today, investors recognize its potential value, and its superior qualities as a cash asset. Bitcoin represents the discovery of digital scarcity while offering a range of use cases far beyond those of precious metals.
As such, Bitcoin has become a significant force in the economy in just 15 years – reaching a market capitalization of $1.4 trillion on March 13, 2024.
Although this growth cannot be attributed unilaterally to the fact that Bitcoin meets the requirements for a store of value better than gold, it is certainly promising. This “magical internet money” continues to make rapid gains on gold’s estimated $15.9 trillion market cap.
Monetary qualities of gold: numerical perfection
Scarcity: Bitcoin has a limited supply of 21 million coins, making it resistant to the arbitrary inflation that plagues traditional currencies and market-driven supplies of precious metals.
Durability: Bitcoin is a form of money that is purely data-based and immutable. Its digital ledger system uses proof of work and economic incentives to resist any attempts to change it, ensuring that it remains a reliable store of value over time barring unexpected catastrophic risks. Due to its informational nature, the ability to store Bitcoin despite adversaries' attempts to prevent you from doing so is another positive monetary attribute.
Immutability: Once a transaction is confirmed and recorded on the Bitcoin blockchain, it is extremely difficult to change or reverse it, although not impossible. This immutability, derived from the geographic distribution of Bitcoin's network of nodes and miners, is a critical feature. It ensures that the integrity of the ledger is maintained, and transactions cannot be tampered with or forged. This is especially important in an increasingly digital world, where trust and security are top concerns.
Conclusion
Bitcoin's rise as a monetary commodity – predictable, free of ultimate inflation, and easily convertible – has helped it gain acceptance as a store of value among its holders. With the upcoming halving, its scarcity will surpass gold for the first time and is likely to serve as a wake-up call for market participants seeking to avoid the impact of a monetary decline.
Although there are no certainties in life, especially in investing, the near certainty that Bitcoin provides in its ability to maintain the integrity of its 21 million maximum supply through its decentralized nature still drives adoption one block at a time.
Gold has had a good run. But, with the halving looming on the horizon, it's Bitcoin's time to shine.
