Author: Nate Maddrey & Coin Metrics Team
Translation: Li Hanbo
For most of the time that Bitcoin has existed, institutions have generally stayed away from investing in Bitcoin on the grounds that Bitcoin is a risky and speculative asset. However, in the course of 2020, many institutions have begun to recognize Bitcoin. One of the most direct reasons for this change is that Bitcoin can be used as a good hedge against inflation.
For example, in early May, billionaire hedge fund manager Paul Tudor Jones announced that he had more than 1% of his assets in Bitcoin. He explained that he sees it as a tool to hedge against inflation. He said: “We are witnessing the Great Monetary Inflation-every form of currency is expanding unprecedentedly, which has never been seen in developed countries.”
In their recent report “Why Corporate Treasury Bonds May Consider Bitcoin”, Fidelity Digital Assets cited potential inflation as one of the main reasons why companies began to consider holding Bitcoin in corporate bonds. Companies such as MicroStrategy and Square have recently bought Bitcoin and stated that they believe Bitcoin is a protective measure against inflation.
The rapid spread of COVID in early 2020 seems to have changed the macro environment overnight. After the market plummeted in March 2020, global central banks began printing money and introduced quantitative easing measures, coupled with active fiscal stimulus, at an unprecedented speed. At the end of March, the United States passed the CARES Act, providing stimulus funds worth about US$2 trillion. Therefore, the U.S. M2 currency stock, as shown in the figure below, during the course of 2020, the U.S. M2 currency stock has grown from approximately US$15 trillion to approximately US$19 trillion, a tremendous increase. After the 2007-2008 financial crisis, from January 2008 to January 2010, the M2 currency stock increased by less than US$1 trillion.
Source: FRED economic data
Source: Federal Reserve Bank of New York, Microeconomic Data Center
Source: Federal Reserve Bank of New York, Microeconomic Data Center
In contrast, Bitcoin has not been affected by the uncertainty of monetary policy. One of Bitcoin’s core attributes is its predictable supply schedule. Whenever a new block is mined, a new Bitcoin will be issued as a reward for the miners who successfully mine the block. This is the only way to create a new Bitcoin and it is a key part of the Bitcoin protocol.
Bitcoin’s current block reward is 6.25, which means that every time a block is mined, 6.25 new Bitcoins will be issued. On average, blocks are mined every ten minutes, which usually means about 800-1000 new bitcoins are issued every day. Since the specific mining frequency of new blocks is unpredictable, there will be slight differences every day (the difficulty of Bitcoin is adjusted every two weeks to keep the average block time at about ten minutes), but in the long run, this supply issuance It is certain and predictable.
Importantly, the supply and issuance of Bitcoin is also transparent and auditable. Anyone can run a Bitcoin node and independently verify the circulation of Bitcoin throughout history. The chart below shows the daily issuance of Bitcoin, dating back to 2012, using a 30-day moving average.
Source: Coin Metrics Network Data Charts
Source: Coin Metrics Network Data Charts
Source: Bitcoin- A Novel Economic Insititution
