National monetary policies are continually shaped by political will and external economic factors. However, Bitcoin represents an opposite point, embodying a monetary system where politics is largely unaffected by these effects thanks to halving.
Encapsulating this idea, Fidelity argues that Bitcoin monetary policy remains unchanged due to politics or external factors.
Halving meaning: Decreased supply to increase demand
At the heart of bitcoin’s economic model, halvings happen roughly every four years, or every 210,000 blocks mined. The term “halving” of Bitcoin refers to the halving miners receive in return for adding new blocks to the blockchain.
This process affects the supply and demand dynamics of Bitcoin by reducing the rate of new BTC issuance while leaving miners’ production costs unchanged. Each interval halves the bitcoin block support, which is the compensation received by miners.
“This monetary policy is set in code and is unlikely to ever change. Simply put, Bitcoin monetary policy is not dependent on or influenced by external politics or economic factors.” He said Daniel Gray, research analyst at Fidelity.
The predictable and immutable decrease in the issuance rate gives Bitcoin a unique monetary policy.
For example, in the first four years of Bitcoin, the mining reward was 50 BTC per block, it dropped to 25, then 12.5, and it currently sits at 6.25 BTC per block. The next halving expects rewards to shrink to 3.125 BTC, which means an average inflation rate of around 0.8%.
Interestingly, even with the halving reduced to miners’ original BTC rewards, it doesn’t necessarily erode their USD-denominated returns. The basic reason is that supply and demand mostly influence the price of Bitcoin.
Since the halving causes the new supply to decrease, since the demand remains constant, the price may experience upward pressure. As the issuance of Bitcoin seems to be dwindling, so is its dollar-denominated revenue growing. Therefore, making the halving events beneficial to miners and investors.
“Without any change in price or demand, the halving reduces the issue from 900 to 450, ultimately halving the sell-side pressure. To maintain a constant price of $28,000 with the new half of the issue, demand only needs to be $12.6 million. If (the current $25 million order) remains unchanged, the price should soon correct to match demand,” Gray added.
Has the Bitcoin halving been priced in yet?
Halving also affects the behavior of the Bitcoin market. Historical trends indicate that Bitcoin is seeing a surge in value after the halving. Past events have seen returns rise as declining supply meets growing demand.
As adoption continues to grow, a simultaneous contraction in the issue price is likely to lead to an upward correction in the price. Halfen Bitcoin acted as catalysts for a significant rise in the market value.
“Before Bitcoin reached a market cap of over $150 million, the first halving happened. Almost a year later, the Bitcoin price was up around 9,100%…. The second halving led to a price peak of 2913% after about a year and a half…. Gray concluded. That third half price growth peaked at 686%, about a year and a half later.
Through mechanisms such as the halving, Bitcoin proves its resilience and self-sustaining nature. Thus shaping Masar as a truly decentralized and self-regulating monetary system.
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