Bitcoin presents a whole new financial framework – and people are starting to take notice
Scrolling through Twitter this week, I stopped at a Tweet which simply said: “Give me your single most compelling reason why Bitcoin outperforms every other asset over the next 2-3 decades…”
And people chimed in.
I was particularly struck by the number of Tweeters not only mentioning that Bitcoin is garnering significant attention as a digital payment system, but that it also has its own unique monetary policy.
Unlike traditional currencies governed by central banks, Bitcoin operates on a distinct set of rules defined by its protocol. This is driving investors, it would appear, into the world’s largest cryptocurrency.
One of the key features of Bitcoin’s monetary policy is its limited supply. The total number of Bitcoins that can ever exist is capped at 21 million coins. This scarcity is in stark contrast to traditional currencies, where central banks have the authority to print more money when needed, leading to inflation.
Bitcoin’s fixed supply ensures that the cryptocurrency cannot be subject to arbitrary inflationary measures, providing a sense of security for investors.
Its issuance is also predictable. Through a process called mining, new Bitcoins are created and added to the circulating supply.
However, the rate of issuance is programmed to decrease over time. Initially, miners were rewarded with 50 Bitcoins for each block they successfully mined. This reward is halved approximately every four years in an event known as a ‘halving’.
As of now, the block reward stands at 6.25 Bitcoins. This decreasing issuance rate creates a deflationary effect and adds to Bitcoin’s scarcity.
This limited supply makes it comparable to scarce commodities like gold. Investors value this characteristic as it offers protection against the erosion of purchasing power caused by inflation. The fixed supply ensures that the value of existing Bitcoins is set to increase as demand rises, making it an attractive store of value for investors seeking alternative assets.
The monetary policy is implemented by a decentralised network of participants following pre-established rules. This removes the need to rely on a central authority or government, reducing the risk of interference or manipulation.
It seems that investors increasingly value the transparency and trustworthiness of the protocol, as it provides reassurance that their investments are not subject to arbitrary changes or political influence.
Bitcoin’s unique monetary policy and its decentralized nature make it an appealing investment option for those seeking diversification and a hedge against traditional markets. Its price movements are often uncorrelated with traditional assets such as stocks and bonds, providing potential protection during times of economic uncertainty.
For me, and many other investors, the monetary policy of Bitcoin is the killer feature. It presents a whole new financial framework where scarcity is controlled by maths, and not by trust in centralised authorities which have whims, biases, and shortcomings. It’s the game-changer.