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Bitcoin inflation is now 75% lower than the current US rate following the halving
LONDON, ENGLAND – DECEMBER 7: A visual representation of the digital cryptocurrency, Bitcoin… [+] next to US dollars on December 7, 2017 in London, England. Cryptocurrencies including Bitcoin, Ethereum and Lightcoin experienced unprecedented growth in 2017, despite remaining extremely volatile. While digital currencies across the board have divided opinion among financial institutions and now have a market capitalization of around $175 billion, the cryptocurrency sector continues to grow, as it continues to see broader adoption by the mainstream. The price of one Bitcoin surpassed USD 15,000 on many exchanges today, surpassing previous all-time highs. (Photo by Dan Kitwood/Getty Images)
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Bitcoin’s inflation rate after the halving is now 75% lower. current US inflation is 72% lower than the annual gold output. After the Bitcoin halving in April, the block reward dropped from 6.25 BTC to 3.125 BTC, significantly impacting the cryptocurrency’s issuance rate. Each halving event decreases the supply of new bitcoin, tightening market supply and potentially increasing the value of the asset over time.
With around 450 BTC mined each day, bitcoin’s current inflation rate stands at around 0.84%, while the most recent US inflation data for May was 3.4%. This reduction in Bitcoin’s inflation rate marks a significant milestone, as it now also surpasses the lower bound of that of gold annual inflation rate, which varies between 1% and 3% per year. The issuance of gold by mining contributed to a 1% increase in supply, while recycled gold is also factored into its inflation rate, which was 9% in 2023, leading to a 3% net increase in the circulating supply of gold.
The April halving event, encoded in Bitcoin’s blockchain protocol, occurs approximately every four years and reduces miners’ reward for verifying transactions and adding new blocks to the blockchain by 50%. This mechanism controls the supply of bitcoin and mimics the scarcity dynamics of precious metals, thus insulating the currency from inflation. Since the last halving, the total circulating supply of bitcoin it approached 19.7 million out of a high of 21 million, setting the stage for a post-halving inflation rate of about 0.84% per year.
Historically, bitcoin halvings have been followed by significant price increases. For example, after the previous halving in May 2020, the price of bitcoin increased fivefold in the following year.
Price trend from each halving
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The limited number of bitcoins that can come into circulation makes them a scarce asset, which, for some investors, is enough to make them valuable. The recent halving has also increased attention and speculation within the crypto community, and many of them anticipating a similar uptrend.
The impact of the halving on the price of bitcoin is multifaceted. On the one hand, the reduced supply of new bitcoins entering the market can lead to an increase in demand and a corresponding increase in value. On the other hand, the event also reduces the incentive for miners to continue their activities, which can potentially reduce their safety. A greater understanding of this dynamic led to an increase in the price of bitcoin in the months leading up to the most recent halving event, when the price of bitcoin reached an all-time high of over $73,000. This marked the first time Bitcoin marked a new pre-halving high.
Halvings highlight bitcoin’s unique deflationary properties compared to traditional fiat currencies, whose central banks can increase supply at will. Bitcoin’s programmed scarcity gives it unique resistance to inflation, where annual gold production tends to increase. This potentially decisive advantage for Bitcoin is of growing interest among financial analysts and investors.
Despite these unique deflationary properties, bitcoin remains a relatively young asset compared to gold, a store of value proven for millennia. Its growing adoption, marked by milestones such as the approval of spot ETFs and its record prices, does not prevent it from experiencing strong fluctuations. To establish itself as a globally recognized store of value, bitcoin will need to continue to demonstrate its durability and greater stability.
Ultimately, bitcoin’s fourth halving significantly reduced the cryptocurrency’s inflation rate, making it lower than that of gold and the current US inflation rate. In a world struggling to control inflation, this has the potential to do so improve bitcoin’s value proposition as a stable store of value and hedge against the traditional financial system.