What significant event happens every four years?
No, it's not the presidential election... It's the halving!
Almost sounds like a creepy suspense movie right? But it's not... It's much better...
It's about the production of Bitcoin (BTC). Approximately every four years or really 210,000 blocks, Bitcoin goes through a halving where the reward for mining Bitcoin gets cut in half and the next halving is just around the corner which will cause a deflationary effect. Approximately 85% of the possible 21 million coins have already been produced but this halving reduces the supply of additional coins that will be added to the market. Thus it creates it's own inflation and acts similar to gold.
Gold works as a means of exchange because of the quantity in reserves, the scarcity of the resource, and the cost to acquire more. These are all important factors in a currency. Thus gold maintains it's value and has worked through the centuries as a means of exchange. Platinum coinage, although rare and valuable doesn't work as there isn't an adequate reserve. Any demand or major usage could cause major inflation, price swings, or shortage of the currency. A currency should have a stable exchange rate while also being efficient and cost effective in order to be practical and widely used in commerce. It's also important to offer some form of inflation to promote growth over time.
This is why Bitcoin works. First, there is already a large amount in circulation as Bitcoin was the first to market and it will take a long time before we ever mine the last Bitcoin creating scarcity and natural inflation. How does the price natural inflate? Well consider the average energy cost to produce one Bitcoin in the United States was reported to be about $4,758 in 2018. If one produces half the amount of Bitcoin for the same amount of effort after the halving, our new cost per one Bitcoin should double to $9,516 thus inflating the price point after each halving. Based on the current purchase price, it's possible that the market has already accounted for the halving which is supposed to take affect in May. Assuming energy cost stay the same, which it doesn't... the cost to produce one Bitcoin sixteen year from now could be $152,256; assuming four halvenings from the 2020 halving. Ouch, noticed I said cost... Right now Bitcoin is almost trading double to it's $4,758 cost but not for much longer because the cost is going up. Luckily the problem of supply was solved as Bitcoins are divisible into a Satoshi or 0.00000001 BTC which will likely be needed when Bitcoins reaches an estimated mining cost of $1,247,281,152 in 2088. Yes, that's a long ways off but consider that $9,516 compounded at 3% annually for inflation would only be $71,024 in 2088; think about those Grandchildren and the legacy that could be left behind.
Some will argue that Bitcoin has no intrinsic value but neither does our fiat currency. What stops the Federal Reserve from printing more Dollars? In 1933 the United States went off the gold standard. The Dollar standard is almost 87 years old while most fiat currencies throughout history have only last about 27 years. The only value in the Dollar is the perceived value and the strength from it being backed by $3 trillion in tax liabilities annually which is to be paid in Dollars. We have a currency backed by debt. If the government runs up a debt, they can simply print more money causing inflation thus increasing tax revenue while devaluing their debt as it will now be worth less making it easier to pay off. Governments want control over their monetary supply or they lose control over their people and their global position. This is why crypto currencies like Bitcoin are a threat and major concern to the Government. The Government can't devalue it, has little control over it, and it's protected from a devaluing Dollar when inflation sets in. The value of Bitcoin is built in by it's scarcity and it's mining cost. Unfortunately China has been hard at work mining Bitcoin. Crypto puts the power back into the hands of the people as our forefathers wanted and is likely here to stay.
There are a lot of crypto currencies out there and not all of them will see huge financial gains. Many crypto currencies like Ethereum focus more on the application side while blockchain technology which will help to revolutionize our future in things like the internet, escrows, and our personal data. Getting started today is more easier than ever before with things like: Coinbase, Gemini, eToro, and even Robinhood.
Charting -
In a discussion at the beginning of January, I predicted that Bitcoin would hit $6,800 and I was right. I then ran some charts drawing a channel-line showing the general downward trend and then predicted that if it crossed, it would likely start a new upward trend.
And again it did...
It looks like it's broken the downward trend and heading up for a run.
Note: Crypto currency is a speculative and high risk investment with potential for loss. This graphic is for educational and information purposes only and is not to be seen or used as financial advise. Past performance is no guarantee of future results. We do not represent any of the brands or companies mentioned. Please consult your financial adviser and tax accountant prior to any investments.