June 4, 2024
Bitcoin Inflation Drops 75% Below Current US Rate Post-Halving
Bitcoin Halving

Bitcoin Inflation Drops 75% Below Current US Rate Post-Halving

Following the April bitcoin halving, the cryptocurrency’s inflation rate has significantly decreased. The halving event reduced the block reward from 6.25 BTC to 3.125 BTC, cutting bitcoin’s issuance rate in half. This has led to a tightening of the market supply, potentially increasing the asset’s value over time.

Comparing Bitcoin’s Inflation to US and Gold Rates

Currently, around 450 BTC are mined daily, bringing bitcoin’s inflation rate to approximately 0.84%. In contrast, the US inflation rate for May was reported at 3.4%. This marks a significant milestone for bitcoin, with its inflation rate now being 75% less than that of the US. Additionally, bitcoin’s inflation rate is 72% lower than gold’s annual issuance rate, which fluctuates between 1% and 3% per year. Gold mining contributed to a 1% increase in supply, and when factoring in recycled gold, the net increase in gold’s circulating supply in 2023 was 3%.

Halving’s Impact on Bitcoin’s Supply and Value

The halving event, which is hardcoded into bitcoin’s blockchain protocol, occurs roughly every four years. It reduces miners’ rewards for verifying transactions and adding new blocks by 50%. This mechanism controls the supply of new bitcoins and mimics the scarcity dynamics of precious metals. As of the latest halving, the total circulating supply of bitcoin was close to 19.7 million out of a maximum of 21 million, resulting in a post-halving inflation rate of around 0.84% per annum.

Historical Price Trends Post-Halving

If we see historically, bitcoin halvings have been followed by significant price increases. For example, after the previous halving in May 2020, bitcoin’s price increased fivefold over the following year. The limited number of bitcoins that can enter circulation makes it a scarce asset, which adds to its perceived value among investors. The recent halving has heightened attention and speculation within the crypto community, with many anticipating a similar bullish trend.

Source: Glassnode

Multifaceted Impact on Bitcoin’s Price

The impact of the halving on bitcoin’s price is multifaceted. The reduced supply of new bitcoins entering the market can lead to increased demand and a corresponding rise in value. However, the event also reduces the incentive for miners, potentially affecting the network’s security. This dynamic has led to a rise in bitcoin’s price in the months leading up to the most recent halving, with bitcoin hitting an all-time high of over $73,000. This was the first time bitcoin set a new peak pre-halving.

Bitcoin’s Deflationary Properties vs. Traditional Fiat Currencies

Bitcoin’s halvings highlight its unique deflationary properties compared to traditional fiat currencies, which central banks can increase at will. Bitcoin’s programmed scarcity gives it a unique resistance to inflation. This contrasts with gold, where annual production tends to increase. Bitcoin’s deflationary nature is attracting growing interest among financial analysts and investors.

Bitcoin’s Future as a Store of Value

Despite its deflationary properties, bitcoin remains a relatively young asset compared to gold, a long-established store of value. Bitcoin’s increasing adoption, marked by milestones such as the approval of spot ETFs and record-high prices, does not eliminate its volatility. To establish itself as a globally recognized store of value, bitcoin will need to continue proving its durability and stability.

Conclusion

The fourth bitcoin halving has significantly reduced the cryptocurrency’s inflation rate, making it lower than both gold’s and the current US inflation rate. In a world struggling with inflation control, this reduction has the potential to enhance bitcoin’s value proposition as a stable store of value and a hedge against traditional financial systems.

Image by freepik

Disclosure Statement: Miami Crypto does not take any external funding, or support to bring crypto news to the readers. We do not have any conflicts of interest while writing news stories on Miami Crypto.

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