Later today, A Bitcoin Halving will happen for only the 3rd time in its existence.
The number of new Bitcoin issued will get cut in half. Let’s look at what that means.
The Mechanics of the Bitcoin Code
It’s written into the original Bitcoin code that each new block that’s mined includes the block reward of new Bitcoin released to the network. That happens every ~10 minutes.
Also, written into the code is that every 210,000 blocks, which translates into 4 years, that reward cuts in half. So since Bitcoin started, we have had 3 different block rewards:
- 50 BTC every 10 minutes Genesis block up to 2012
- 25 BTC every 10 minutes 2012-2016
- 12.5 BTC every 10 minutes from 2016-May 2020
So when this takes place today, the block reward will drop from 12.5 BTC to 6.25 BTC every 10 minutes reducing the new daily supply from 1800 per day to 900 per day.
This is a great accomplishment to show the software and algorithms behind Bitcoin are continuing to perform as they were originally designed. It’s great to see this action confirm our ideas that the fixed supply of 21 million will stay fixed.
Why Should You Care?
Economics of Supply and Demand
Many see this as a bullish event for Bitcoin based on the supply and demand of basic economics. If the demand for BTC continues but the supply is less, then a price increase seems inevitable, right?
Well yes, BUT.
But there are lots of factors that go into demand and demand changes over time. I think demand will grow more from here. Many people never interested before are asking me about Bitcoin. These people heard the Federal Reserve say they will print as many USD as necessary to prevent a full-on global depression. Now people are seeing that the ‘full faith and credit of the US Government’ that backs the USD is not as strong as we thought years ago.
I expect this to continue and each passing year it gets a little easier to buy Bitcoin.
Then there’s the issue of inflation. The USD shoots for an inflation level of 2-3% per year in our pre-virus world. This means they know and expect that your $1 will only buy you 98 cents worth of goods and services the next year. And this continues year to year.
Bitcoin has an inflation rate too. It’s easy to calculate since we know how many BTC are out ‘in the wild’ now as well as how many are produced each day by the block rewards. As of today, 87% of the Bitcoins that will ever exist have been created already or 18,374,375 BTC.
With this halvening, Bitcoin’s inflation rate will change.
At 900 BTC per day, that means an annual ‘printing’ of 328,500 per year. And our total stock is the 18,374,375 listed above. So the inflation rate is now (328,500/18.374,375) or 1.78%.
One of the important aspects of this halvening is that 1.78% is now less than the projected USD inflation of 2-3% each year.
Most of us long-termers believe that Bitcoin is the best ‘hard money’. Hard money meaning limits to supply, inflation and other factors that cause money to lose its value.
It’s easier to make a claim of being ‘harder’ money than the global reserve currency when our inflation goes below the USD inflation rate. Until we see the effects of this, the benefit is mostly symbolic but it is a benefit.
Bitcoin’s supply of new coins cuts in half later today. The 2 primary reasons of similar demand but lower supply plus Bitcoin’s lowest inflation rate of any real money are bullish arguments for Bitcoin. Throw in that this is pre-programmed into the code, the same code that is working continuously for 11 years now, then Bitcoin keeps chugging along doing what it’s supposed to.
Are you ready to buy some Bitcoin yet?