Please click the link to listen to the 75th episode of my weekly crypto podcast ‘Two Minute Crypto.’ These are intended to be short, single-topic ramblings on some aspect of the cryptosphere. Consider dropping a like and or a review on iTunes or Podbean if you enjoy the podcast. Comments and critiques welcome.
Welcome to Two Minute Crypto – today’s episode focuses on BTC’s looming halving and attempts to place it within the greater context of Bitcoin’s value proposition.
With less than 30 days before the next halving it’s no surprise that market attention has begun to fixate on it. However, this singular focus is perhaps somewhat misplaced. Of course, over the long-run, all other factors being equal, a significant reduction in issuance is price supportive but therein lies the rub – other factors do indeed matter and will profoundly influence price.
As a long-term investor in BTC, you are far better served looking beyond the halving to assess its value proposition. Bitcoin’s true worth lies in its comparative scarcity in relation to other assets. Fiat supply is uncapped and ever more prone to inflation. Gold and silver are only notionally limited as higher price leads to increased mining and, in time, supply. Perhaps only land may lay the same claim to scarcity as Bitcoin though, of course, there are so many ways for land to gather or lose value that the comparison is essentially worthless.
BTC’s scarcity is coded in place and requires those who benefit the most from this scarcity to vote to inflate supply – technically possible but exceedingly unlikely. At over 87% issuance the vast majority of all BTC that will ever exist is already in circulation. With somewhere between 3 to 4 million of this supply actually irretrievably lost. Reducing the issuance rate of what remains is important but not the primary driver of BTC’s value proposition.
Each and every day, the global monetary supply expands. In recent weeks by trillions of dollars. Yes, trillions. If BTC is to succeed, at some point, a tiny fraction of global investment will start to flow into BTC. At a 125 billion dollar market capitalization, that flow is but a tiny trickle and it may be years before government and central bank policies lead to widespread hyperinflation. To those of us who dwell on money supply, issuance, interest rates, the everything bubble and the many lessons of history – BTC’s appeal is obvious. For the vast majority of the world – savvy investors included – not so much.
Nonetheless, the comparative scarcity of BTC remains a constant that, day by day, becomes ever more obvious. It is this, not this halving, or the next, that may prove the primary driver of sustained price appreciation.
Historically, halving’s have led to a short-term retraction in value as unprofitable miners are forced from the market, and profits are taken. This correction has then been followed by an extended period of network growth and investor interest culminating in new all-time highs. However, BTC’s economic life cycle has been so short and untested that any price prediction model should be treated with a healthy dose of skepticism. Its scarcity though is dependable and relentless. Over a long enough time horizon BTC may reach heights hard to imagine in 2020 and it will do so because it is already scarce what’s missing is a broad-based recognition of the importance of this state of rarity.
Thanks for listening.