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Bitcoin halving event is coming

For the first time since its creation, Bitcoin's annual inflation rate is lower than that of gold, a typical store of value. When Bitcoin reaches block height 840,000, Bitcoin's annual supply will be cut in half, causing its annual inflation rate to drop from 1.7% to 0.85%. In contrast, gold supply is expected to increase by 1-2% each year, depending on technological changes and economic conditions.

To date, Bitcoin has undergone three halving events:

November 28, 2012: Bitcoin’s block subsidy is reduced from 50 BTC per block to 25 BTC per block.

July 9, 2016: Bitcoin’s second halving reduces the block subsidy from 25 BTC per block to 12.5 BTC per block.

May 20, 2020: Bitcoin’s third halving reduces the block subsidy from 12.5 BTC per block to 6.25 BTC per block.

The upcoming fourth Bitcoin halving is expected to occur on April 20, 2024 EST, and will reduce the new supply of Bitcoin per block from 6.25 BTC to 3,125 BTC. Over this period (210,000 blocks or about 4 years), the supply of Bitcoin will increase by 164,250 BTC (from 19,687,500 to 20,671,875), only 328,124 more Bitcoins away from the maximum supply limit of 21 million.

Gold through the ages

One benchmark often used to highlight the store of value function is that the value of an ounce of gold matches the price of a "gentleman's suit" over time. This principle, known as the "gold to decent suit ratio," dates back to ancient Rome, where a top-quality robe was said to cost the equivalent of an ounce of gold. 2,000 years later, the value required to purchase a high-quality suit remains close to the price of an equivalent ancient Roman robe.

While gold has for years been very much in line with expectations for buying its holders a men’s suit, the lustrous yellow metal has its challenges.

For example, the cost of verifying or analyzing gold requires it to be dissolved in a solution or melted. This is undoubtedly a challenge for those who want to buy everyday household items with a hard-earned store of value.

Furthermore, the cost and onerous nature of transporting and storing gold itself arguably led to the demise of the gold standard. While certificates of deposit were historically redeemable for gold, the underlying commodity was often rehypothecated, leading to the US’s permanent abandonment of the gold standard in 1971, resulting in the infamous “Nixon Shock.”

Not to mention the risks associated with acquiring physical gold, whose physical nature reaffirms the risks and responsibilities of its function as money. I am reminded of Executive Order 6102, in which then-President Franklin Delano Roosevelt prohibited the “hoarding of gold coin,” highlighting the unique challenges of adequately and privately insuring precious metals of enormous value.

Bitcoin from speculation to safe haven

Initially viewed as a speculative asset due to its early price volatility, Bitcoin is now increasingly viewed as a store of value. Today, investors recognize its potential value and superior qualities as a monetary asset. Bitcoin has digital scarcity characteristics while offering a range of use cases that go far beyond precious metals.

As a result, Bitcoin has become a significant force in the economy in just 15 years - with a market value of $1.4 trillion on March 13, 2024.

While this growth cannot be attributed solely to Bitcoin fulfilling the requirements of a store of value better than gold, it is certainly promising. The “magic internet money” continues to rise rapidly against gold’s market capitalization of approximately $15.9 trillion.

Bitcoin’s Perfect Monetary Qualities

Scarcity: Bitcoin has a limited supply of 21 million, making it resistant to the arbitrary inflation that plagues traditional currencies as well as market-driven precious metal supplies.

Durability: Bitcoin is a purely data-based, immutable form of money. Its digital ledger system uses proof of work and economic incentives to resist any attempt to change it, ensuring that it remains a reliable store of value over time unless unforeseen catastrophic risks arise.

Immutability: Once a transaction is confirmed and recorded on the Bitcoin blockchain, it is extremely difficult, though not impossible, to change or reverse. This immutability, which stems from the geographical distribution of the Bitcoin network of nodes and miners, is a key feature. It ensures that the integrity of the ledger is maintained and that transactions cannot be tampered with or forged. This is especially important in an increasingly digital world where trust and security are paramount concerns.

in conclusion

Bitcoin’s rise as a monetary commodity — predictable, immune to terminal inflation and easily transferable — has earned it acceptance as a store of value among holders. With the upcoming halving, its scarcity will surpass that of gold for the first time and could set off alarm bells for market participants seeking to avoid the drag of currency debasement.

While there is no certainty in life, especially not in investing, Bitcoin’s ability to maintain the integrity of its 21 million supply cap through its decentralized nature is close to certainty.

Gold is doing well. However, with the halving just around the corner, now is Bitcoin’s time to shine.