Future mining rewards halved Bitcoin (BTC -0.16%) Networks are different from others. Ark Invest mastermind Cathie Wood has found an innovative quality in this basic update that sets it apart from her first three.
Does this unique event make Bitcoin a better long-term wealth storage system than investing in gold? Let's take a look.
What Cathie Wood Said
In a recent video interview with Yassin Elmanjira, Director of Digital Assets at Ark Investments, Wood talked less about Bitcoin's upcoming halving event, which could change the landscape of the crypto market forever. Revealed unprecedented details.
The growth rate of supply is expected to be halved to just under 1% annually. Compare this to gold, whose supply is growing by about 1% per year on average. Bitcoin supply growth will be slower than that. (Lightly edited for readability)
Why is this insight so important?
It goes back to the famous concept of prices in a free market reflecting the balance between supply and demand. Gold has traditionally been considered a good store of value because it is in limited supply and the rate of new production is fairly slow. But now, for the first time, Bitcoin's supply-side growth will suddenly fall below the pace of gold's inflation.
According to Bitcoin's white paper, which defines how this virtual currency works, “the steady addition of a certain amount of new coins is similar to gold miners expending resources to increase the amount of gold in circulation. “I'm there.” “In our case, what is consumed is his CPU time and power.”
Thus, the self-proclaimed “open source peer-to-peer money”, or digital gold, will ultimately fulfill the purpose for which it was designed. That certainly sounds like a game-changing event.
Bitcoin’s gold-like stability
It's no secret that Bitcoin has a limited supply. In fact, its lifetime limit of 21 million digital coins is often cited as a reason to invest in this digital paragon of long-term stability.
19.6 million of these tokens have already been mined, leaving less than 7% of the total supply available for future mining operations. With mining rewards scheduled to be halved every four years or so, Bitcoin's growth rate will only slow further in 2029, 2033, and beyond. The last Bitcoin should be mined around 2140. From then on, mining rewards consist only of transaction fees.
This very long-term plan is hard-coded into Bitcoin's software. Changing these growth-limiting parameters would require overwhelming agreement by supply-side stakeholders to sacrifice the financial stability of their assets, an unlikely event. , especially if Bitcoin actually evolves into a ubiquitous digital alternative to gold.
Impact of the next Bitcoin halving
So far, Bitcoin halving has always heralded a sharp rise in crypto prices.
For example, in the first reward cut in 2012, 1 Bitcoin was worth $12. A year later, the price he peaked at $1,170 and then fell again. The 2016 halving increased the price of Bitcoin from $640 to $19,650 in 17 months. The most recent reduction in mining rewards took place in May 2020, when the price was $8,600. Eighteen months later, that price cycle peaked at $67,500.
Past performance is no guarantee of future results, but Bitcoin breaks that rule of thumb in several ways.
- The half-life is fairly predictable. These occur approximately every four years, and each time the economics of Bitcoin mining fundamentally change.
- The mining process serves an important purpose in processing Bitcoin transactions. Without it, the blockchain would stop. Therefore, the whole system only makes sense if the miners receive enough rewards to make their business successful. And if the mining reward is halved, the number of Bitcoin tokens produced by processing cycles and steady consumption of electricity will be halved. If the price does not rise over time, Bitcoin miners will go out of business.
- Therefore, a halving will almost inevitably lead to an increase in Bitcoin price. Although it is not the only factor that influences market makers in determining Bitcoin's real-time price, it is certainly the most important and predictable pattern-forming tool on the crypto table. The inevitability of this trend will only break if Bitcoin itself becomes obsolete and shuts down. Therefore, this pattern of dramatically rising prices in the months following each halving will continue for as long as Bitcoin has a future.
- And the next halving could certainly look different, as inflation rates below gold's annual production growth suggest a revolutionary level of stability in value protection.
The cryptocurrency market in general, and Bitcoin in particular, still faces many headwinds and challenges. Advances in digital currencies could be stumbled by legal and regulatory hurdles, slow adoption of crypto-based services in consumer markets, and unanticipated technology breakthroughs, to name just a few potential game breakers. there is. However, the steady rhythm of planned mining reward halving will continue regardless, resulting in rock-solid stability or the end of the Bitcoin world.
Image source: Getty Images.
Bitcoin deserves a modest investment today
I look forward to the Bitcoin community addressing and overcoming these inevitable challenges. As long as the global market can generate steady or increasing demand for this digital asset, the supply side looks solid.
In the long term, we believe there is tremendous value in mass adoption of digital currencies and blockchain networks, and Bitcoin is the 800-pound gorilla to beat in this space. So, while we recommend adding some exposure to Bitcoin to your investment portfolio, you don't want to go all-in on crypto just yet in case your ambitious gold replacement plans don't pan out.
