The fourth bitcoin halving took place on April 19, 2024, and analysts are weighing in on its effects on the cryptocurrency’s economic model.
Halving is the event that cuts the reward paid to bitcoin miners in half. It is scheduled to happen every 210,000 blocks mined – about 4 years – and reduces the rate of issuance of new BTCs on the network.
Each block of bitcoin, mined approximately every ten minutes, now produces just 3,125 new BTCs, 50% of what it was before (6.25 BTCs).
This means that, previously, 900 BTC were generated daily. In one year, the amount was equivalent to “inflation” of 1.7% – in this case, the rate at which the supply of new units of currency grows. So, the current new 450 BTC, this rate has dropped to 0.85%.
The point is: when he created bitcoin in 2009, Satoshi Nakamoto (or whoever) stipulated that the maximum supply of BTCs would be only 21 million units.
There is no way to find ‘other deposits by chance’ and increase this quantity. There will be 21 million units and that’s it. In other words, bitcoin is immutably deflationary in nature.
To date, 93.77% of all possible bitcoin supply has already been mined. It’s on the market.
Okay, but what about the gold with it? It’s simple: unlike bitcoin, gold does not have a similar supply control mechanism. While BTC mining has declined over time, gold mining continues at a steady pace, as shown in the chart below.
According to a recent report from Glassnode, a renowned blockchain and cryptocurrency analysis company, these metrics place the rate of issuance of new bitcoins below the rate of mining new tons of gold – 2.5%.
Although it is rare, gold is widely used in various applications, both in the form of jewelry and adornments and in industrial and technological applications. As a result, the race for the precious metal never stops, and new reserves are discovered periodically, disconfiguring it as an intrinsically deflationary asset, as many mention.
Description: Gold is rare, but its production has been constant for decades.
Source: BartChart
In a world where central banks print money non-stop, bitcoin offers an alternative. Although it is marked by high volatility, its limited supply and decreasing inflation rate are characteristics that perfectly align with the criteria for a safe haven asset during periods of economic uncertainty.
From a technical point of view, bitcoin has characteristics that make it a relatively safe asset: its decentralization, the transparency of its blockchain and the fact that it is a finite asset.
Over the years, the correlation coefficient between bitcoin and gold fluctuates. Correlation coefficient is as follows: if it is 100%, it means that gold and bitcoin rise or fall in value in unison. If it is 0%, there is no relationship at all – each one goes up or down independently.
Since the turbulence in the markets in 2020, at the beginning of the pandemic, there has been a rapprochement. And at the end of 2023 it was at around 75%, according to Long Term Trends.
Despite some distrust, the replacement of gold by bitcoin is a thesis long awaited by cryptocurrency enthusiasts. So much so that bitcoin is sometimes called digital gold.
While it is premature to predict whether bitcoin will ever match gold in terms of stability, the bitcoin ecosystem is evolving, and its role may also change over time.
New halvings will come. It is not illusory to think that replacing gold with bitcoin can leave the world of ideas.
*The opinions of columnists do not necessarily represent the position of InvestNews
For you: The main topics to start the day off right!
