Bitcoin “Halves” in 4 Days — What It Means for You?

Bitcoin “Halves” in 4 Days — What It Means for You?

Bitcoin is halving on Tuesday.

Whether you’re invested in cryptocurrencies or not, the halving is a big deal.

As you know, in the wake of COVID-19, the Fed is printing money at an unprecedented rate… the effects of which — clearly stated below — carry historic significance. Writes Morgan Housel at Collaborative Fund:

The budget deficit hit a record in 1943 at 30% of GDP. This year’s deficit, around 19% of GDP, will be equivalent to the deficits run in 1944 and 1945, also during the peak war years. Federal debt as a percentage of GDP is on track to exceed its previous record, set in 1946, next year.

Many regard America’s stimulus measures as fiscal suicide…

An economic Pearl Harbor…

The beginning of a financial ice age.

Considering the workforce is in free fall, along with the prospect of losing half of all small businesses forever under shelter-in-place orders…

I believe some fear is warranted.

The amount of fear is important, too, as many pundits are predicting a second wave of panic-induced selling that retests the market low set on March 23.

Right on cue…

Bitcoin’s post-halving price action is a terrific bellwether.

In one scenario, Bitcoin’s price nose-dives, offering some degree of confidence to the broader markets. Yet in a radically different scenario, Bitcoin rockets higher, signaling a coming great depression.

Let’s address the likelihood of each scenario happening.

First, the basics…

Why Is Bitcoin Halving on Tuesday?

The amount of Bitcoin rewarded to miners is about to halve for the third time.

When Bitcoin first launched in 2009, each block was worth 50 BTC.

In 2012, that amount fell to 25 BTC per block.

In 2016, it further shrunk to 12.5 BTC per block.

On Tuesday, when the network hits 630,000 blocks, miners will earn 6.25 BTC per block.

The slashing in half of rewards every four years — a quadrennial event — is done to offset inflationary effects inherent in a currency with a fixed supply.

Only 21 million bitcoins exist, of which 18.3 million have been mined — meaning nearly nine out of every 10 bitcoins that will ever exist are already in the supply.

It’s estimated that the last bitcoin will be mined on May 7, 2140.

Two Radical Scenarios to Watch For

Since the Federal Reserve can print new dollars anytime — with an infinite supply of printer ink for the presses — the value of a dollar erodes over time.

For example, if a gallon of milk cost 25 cents in 1930, $1.30 in 1970 and $3.75 in 2020… it hasn’t gotten more expensive to milk cows… it’s just that the dollar is less valuable now than it was decades ago.

Bitcoin, however, is the polar opposite.

There’s no central bank deciding anything for Bitcoin… only an algorithm programmed to cease after minting 21 million coins. Therefore, Bitcoin becomes increasingly rare and valuable with every passing day.

A halving event makes Bitcoin even rarer.

By rewarding miners with fewer coins, the supply of coins entering the market is further reduced… adding to Bitcoin’s inherent scarcity.

I’m hoping to see Scenario No. 1 happen on Tuesday.

In Scenario No. 1, traders use the halving as an opportunity to book a healthy profit on Bitcoin’s big move from $5,200 to near $10,000 since mid-March.

Such an outcome would demonstrate that greed (not fear) is dictating Bitcoin’s price.

Scenario No. 2 is more ominous.

Halving will already result in added scarcity… but in Scenario No. 2, the media spark even greater demand for Bitcoin by declaring it a safe haven from the Fed’s printing presses.

The resulting buying frenzy blasts Bitcoin above $12,000.

Not only does Scenario No. 2 send a message that fear is driving Bitcoin’s price, but it also portends a dark remainder of the year for both America and the global community.

But there’s lots of hope for scenario No. 1 to take hold.

Take a leaf out of the book of Paul Tudor Jones, the American hedge fund manager worth over $5 billion.

He’s recently come out and bought Bitcoin as a hedge against inflation stating, “I am not a hard-money nor a crypto nut. The most compelling argument for owning Bitcoin is the coming digitization of currency everywhere, accelerated by Covid-19.”

Exact figures are unknown, but it’s speculated that at least 1% of his wealth is in Bitcoin.

And having that kind of money backing up Bitcoin gives credence to its future use and use.

Fingers crossed.

Onward and upward,

ray

Robert Williams

Robert Williams

After nearly 20 years in the trenches of high finance, Robert has joined St. Paul Research to assume the role of Chief Futurist. Robert cut his teeth as an analyst for one of the most revered and prestigious medical institutions on Earth, whose endowment is valued at $4.3 billion. From there, Robert became the lead...

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