Inflation and The BITCOIN SUPPLY SHOCK That Is Coming!

Inflation and The BITCOIN SUPPLY SHOCK That Is Coming!

bitcoin has recently become a staple holding in the savvy long-term investors portfolio for one very important reason while worldwide prices for goods and services rise over time due to inflation bitcoin has certain characteristics that are deflationary in nature so what are those characteristics and with a limited supply currency what happens when there's no bitcoin left will bitcoin eventually move with inflation or is it the perfect buffer against irresponsible fiscal policy let's find out what is up everyone welcome to crypto capital adventure hit that like and subscribe on the way in in today's video we're delving into economics 101 with a walkthrough of how a deflationary cryptocurrency like bitcoin is designed to hold value against rising inflation now there's a lot to learn here but if you stick around you'll better understand how bitcoin holds its value how it stores its value and how it reacts to external inflationary pressure ready let's dive in now to understand how cryptocurrency works and more specifically how bitcoin holds value we need to go back to some economic fundamentals to break down exactly what drives price supply demand and inflation firstly what is inflation we've all got a basic understanding of inflation and what it is it's the reason you can remember a large mcdonald's meal as a kid costing less than five bucks where now you'd be lucky to get any change back from a 10 bill it's also the same reason big mac was only 45 cents back in 1967 and by the way i don't recommend ever eating mcdonald's but for a textbook definition inflation is the measure of how much the purchasing power of a particular currency declines over time it's a phenomenon that occurs when an oversupply of the currency in circulation causes a decrease in the value of that currency as that currency loses value the prices of goods and services rise if left unchecked this loss of purchasing power ultimately leads to a deceleration in economic growth and a lower standard of living for those holding and earning a wage in that currency now to fight against sustained or hyperinflation a country's central bank or monetary authority keeps a close eye on the total money supply and credit lending interest rates this helps them adjust their parameters to keep inflation within an acceptable limit they're carefully removing old and damaged currency from circulation while printing a calculated amount of replacement notes so what kind of thing can cause an oversupply of money well for starters a country over printing banknotes is a surefire way to raise the overall money supply and devalue the currency combine that with poor fiscal policy irresponsible deficit spending and you end up in a situation like venezuela who has seen unchecked hyperinflation grow from 69 percent per year in 2014 to a blowing 1.3 million percent by the time the government stopped releasing official figures in 2018

keep in mind an acceptable amount of inflation hovers between two and three percent per year as of today it costs around 7.9 trillion venezuelan bolivar for just one u.s dollar which has seen the entire currency replaced twice since 2018 but it's not always the government's fault that inflation runs rampant large foreign investment or attacks on currency speculation markets can drastically alter the monetary supply as well so now we understand inflation and the effect of an ever-increasing money supply and what it can do to the economy how does bitcoin do the opposite with deflation the value of a currency or asset increases relative to goods and services generally deflation is caused by a limited or decreasing supply in circulation or by an increase in technology or innovation upgrades to manufacturing processes and automation means many tech products have actually reduced in price relative to inflation a bottom of the range automatic washing machine in 1915 cost a whopping 99.50 cents which when you account for inflation would be about 1200 dollars in 2021. while you could spend that much today you can easily pick up an equivalent top-loading model for around 300 traditionally there's only really been one main asset that's been considered deflationary a limited supply store value a standard if you will and that's gold gold is seen as a popular hedge against inflation as it tends to retain or increase its value during inflationary periods this is for one very simple reason there's a fixed and finite amount of gold on the planet scientists believe we've mined around 190 000 tons of gold from the earth with around 50 000 tons remaining we don't have the technology to create or print gold like we do with currency so once it's all mined that's it is this scenario sounding familiar yet bitcoin is likewise positioned as a hedge against inflation due to its both limited and controlled supply if you're a bitcoin fan you'll know that satoshi nakamoto wrote into code that there was to be a finite total supply of 21 million total bitcoin the finite supply is also limited by the fact that as a digital currency bitcoin can be irretrievably lost through misplaced seed phrases lost hardware wallets and trashed computers this hard upper limit on bitcoin means that at a certain point there should be less bitcoin versus the demand for them meaning that the price per unit should increase as the supply decreases and just like gold bitcoin has to be mined but with over 18 million bitcoin already produced you'd expect them all to be found pretty soon right well no not exactly roughly every four years or after every 210 000 blocks the amount of mining rewards given out to bitcoin miners is slashed in half when the blockchain first went live in january of 2009 miners used to earn 50 bitcoin for each block being processed almost four years later in november of 2012 bitcoin experienced its first having with the rewards dropping to 25 bitcoin per block it's important to note that at the time of the first having almost 50 percent of all bitcoin had already been mined but the having event would mean progress would get slower and slower as the years went on the third and latest having occurred in may 2020 with rewards dropping to 6.25 bitcoin per block it's expected that if the code isn't altered the final block won't be mined until sometime in the year 2140 so what do you think would happen to the price of an asset that is not only limited in its supply but has a dwindling release schedule that slows to an almost crawl towards the end of the mining run you might think that the declining mining rewards would have a downwards effect on price as it costs more resources to produce less bitcoin well history has another story in the past having events have been correlated with strong price bull runs not long after the first halving in 2012 saw an increase from 12 to over 1100 in a single year the 2016 having caused prices to skyrocket from 658 to 19892 in 2017

even after the consolidation 2018 prices were still up 430 percent higher than its pre-having price similarly after the last 2020 having prices today are at levels roughly 330 percent higher than before rewards were slashed it turns out limiting supply has an interesting effect on price especially in the face of rising inflation in fiat currency and especially on the macro trend it's also important to note that there is a fine balance between the rising price of bitcoin and the increasing costs of running a mining resource bitcoin does have the ability to tweak the difficulty of the mathematical problems required to validate transactions on the blockchain however it's a process they've had to employ twice now reducing the mining complexity and keeping miners incentivized at the end of the day havings cause a supply shock boosting the demand and price of bitcoin up by a factor of at least three every time there are definitely other factors at play but it seems clear that further limiting of supply has a direct correlation with price the only problem with accumulating a deflationary asset that can also be potentially used as a form of currency is that it's difficult to know how to use it there's no incentive to spend or transact in bitcoin if you just wait a week and each coin will be worth slightly more this encourages bitcoin hoarding more frugal spending and an individual ends up just leaving their most urgent purchases up to the last minute if you want to hold but also want to contribute to widespread adoption of bitcoin by transacting across the network get in a mindset of using crypto payments where possible and replenishing anything spent with fiat currency so you don't miss out on possible gains and that's all for me i hope you enjoyed this video on the fundamentals of bitcoin as a deflationary asset if you enjoyed this video please let me know by hitting that like button and if there's anything you think that i miss let me know in the comments below thanks for watching guys and as always i'll see you in the next video god bless