Bitcoin Fees Spike, CBO Projects $20 Trillion More Debt, Bitcoin Harder than Gold, IMF Says Bitcoin Used as Safe Haven, Dollar Tree Increases Prices
News Block #34 (4/23/2024)
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Bitcoin is Now More Scarce than Gold
The elegance and predictability of Bitcoin’s programmatic policy were on full display last Friday night when its block subsidy was cut in half at block 840,000.
An outbreak of war didn’t stop it from happening. No politics came into play. The current state of the economy was not a factor, and no central bankers could change their minds about it at the last second. It happened—just as Satoshi planned it would 15 years ago.
The world can feel so chaotic these days. Every week, it seems like there is some new global conflict or financial crisis, and we never know how our policymakers will respond or how their decisions will impact the value of the money we save in. But with Bitcoin, we have a money that is certain and predictable in an uncertain and unpredictable world. The halving reminds everyone of this fact roughly every four years.
This one was particularly special because, for the first time in its history, Bitcoin can now claim to be scarcer than gold.
Gold’s annual inflation rate – or the amount of new gold that gets mined every year - has held steady at around 1.5% a year. After this halving, Bitcoin’s annual inflation rate now sits below gold’s at 0.8%.
The other big difference? Bitcoin’s inflation rate is set in stone until it gets cut in half again at the next halving in 2028, whereas gold’s inflation rate fluctuates with demand. When the price of gold increases, this incentivizes more people to mine it, which brings more supply into the market. That’s not possible with Bitcoin due to its fixed supply. This is another reason why Bitcoiners can now definitively say that Bitcoin is the scarcest asset in the world.
Leading up to this halving, there was much speculation about how the mining industry would be able to handle its revenues being cut in half overnight.
But instead of seeing their revenues get slashed, miners actually saw their revenues nearly triple at the halving as transaction fees spiked.
The halving block itself had $2.4 million worth of fees and a total block reward of more than 40 bitcoin! Post-halving, there have been several blocks mined that had over $1 million worth of fees.
For reference, the average amount of fees contained in the twenty blocks before the halving was $62,000, or nearly 1 bitcoin, meaning the average total block reward was around 7 bitcoin.
This spike in network fees was attributed to the launch of something called the Runes protocol - which went live at the halving - and allows people to mint tokens on Bitcoin’s blockchain. Fees increased as people rushed to mint these new meme tokens.
Rune tokens are highly speculative, so this spike in network fees could prove to be fleeting. Already, we have seen transaction fees crash back down. The average amount of fees in the last 20 blocks was $130,000 - or around 2 bitcoin - which puts the average total block reward at a little over 5 bitcoin post-halving.
So, as it stands today, post-halving Bitcoin’s fees are about double what they were pre-halving. When it comes to the Runes protocol and the meme tokens it creates, I think its creator, Casey Rodarmor, said it well:
Due to these dynamics, we’ll need some time to pass before we know the full impact of the halving on the mining industry.
In the past, halvings have acted as a cleansing mechanism for the mining industry as inefficient, unprofitable miners go out of business – a sort of Darwinian mechanism where only the strongest survive. However, many believe that miners are better positioned for the halving this time around in part due to Bitcoin’s recent price rally.
There are signs pointing to this in the data too. The chart below from Fidelity Digital Assets shows how, in the past three halvings, on average, 25% of the total hash rate went offline immediately afterward as unprofitable miners unplugged their machines, only for the hash rate to recover in the coming weeks.
As it stands right now, Bitcoin’s hash rate has only dropped about 5% post-halving.
Last week, I was in New York and had the privilege of hosting a roundtable with five leaders from top public mining companies Bitdeer, Marathon, CleanSpark, TeraWulf, and Cipher Mining, where I got to hear firsthand how these miners are navigating the halving. I highly recommend giving it a listen to learn more about how these miners are innovating and planning to thrive over the next four years and beyond.
CBO Projects $20 Trillion in More Debt in the Coming Decade
As Bitcoin’s monetary policy predictably tightened at the halving, uncertainty still remains about whether the Fed will ease U.S. monetary policy and cut rates this year.
Last week, Jerome Powell signaled that the Fed may wait longer than people anticipated to cut rates following a series of surprisingly high inflation prints.
This could impact markets as many were looking forward to rate cuts potentially being a tailwind for asset prices this year. But what this could really affect is the U.S. Treasury Department.
The Treasury continues to run massive deficits that continue to balloon in part because the interest expense on the debt has surged along with interest rates. Without a Fed rate cut, that interest expense and, thus, the deficits won’t be shrinking any time soon.
Jim Bianco wrote on the deficit saying, “The deficit as a percentage of GDP, now 5.93 percent, is higher than in any period except the Great Recession and the 2020 COVID shutdown. The government is borrowing to spend money like the economy is trying to recover from a recession.”
Government spending continues to soar at an unsustainable and unpredictable rate.
Last week, James Lavish tweeted about how even the CBO can’t predict the deficit:
Lyn Alden continued the sentiment when she wrote that the CBO expects about $20 trillion in net new federal debt over the next decade, assuming 1.) no recessions and 2.) that interest rates will go down starting in 2024.
She went on to say that if neither of these things occurs, which is definitely possible, then the amount of new debt issued will likely exceed that $20 trillion estimate.
Although the U.S. debt supply appears impossible to accurately predict; Bitcoin and gold are a different story. Lyn added,
At the current rate, U.S. national debt has been rising about $1 trillion per 100 days. This is unsustainable, and it’s not just Bitcoiners sounding the alarm.
In a rare criticism of the U.S., the IMF even spoke out about the U.S.’s fiscal policy, saying it stokes inflation and poses “significant risks” for the global economy. The IMF continued that the U.S.’s “fiscal stance is out of line with long-term fiscal sustainability. Something has got to give.”
IMF Study Shows Bitcoin Being Used as a Safe Haven Asset
In the last month, the IMF didn’t just touch on the dire outlook of the U.S.’s fiscal situation; it also wrote a piece on Bitcoin that grabbed the community's attention because it was surprisingly positive.
The report analyzed Bitcoin flows to determine how it’s being used around the world.
One major takeaway from the study was that increased Bitcoin activity occurs as investors move away from risk assets, signaling that it’s being used to hedge global uncertainty.
This shows that contrary to popular belief, individuals around the globe are treating Bitcoin as a "risk-off" asset rather than a risky one.
Another finding was that Bitcoin flows increase when local currencies are unstable and macroeconomic imbalances occur. The paper went on to say that there is evidence that Bitcoin is being used to circumvent capital controls.
In other words, people are using Bitcoin just as it was intended to be used: as censorship-resistant money that can protect them from currency instability and government censorship.
This only adds to the prior point—Bitcoin isn’t risky to someone whose local currency is losing value at triple-digit annual inflation levels and confiscating their savings.
Lastly, the study highlighted the increased Bitcoin flows in developing economies like Venezuela and Argentina compared to advanced ones with sophisticated financial markets.
This highlights how Bitcoin adoption is taking place in countries with high rates of currency debasement and economic instability and also hints that adoption is higher in countries where citizens are excluded from the traditional financial system due to a lack of access.
All in all, this IMF study supported what Bitcoiners have been saying for years—that Bitcoin is being used as a safe haven asset as people escape capital controls and try to protect themselves against currency debasement.
Dollar Tree to Increase its Prices Amid Inflation
The cost-of-living crisis continues to unfold in the U.S. as the poorest struggle to afford basic necessities. Historically, one lifeline that people have leaned on when life gets too expensive is to shop at the Dollar Tree.
However, Dollar Tree is no longer living up to its name since inflation reared its ugly head. In 2021, the company raised its base price from $1 to $1.25 to accommodate the rise in prices.
Then, in 2023, the company raised its price cap to $5, and just last week, it again announced that it would hike its price cap to $7.
One of the reasons for this is Dollar Tree stores are getting overrun by people who traditionally shopped elsewhere which is driving their prices up.
Amy Nixon responded to the news on X:
This is what happens when inflation eats away at the purchasing power of one’s wages. $125,000/year doesn’t go as far as it used to. It’s causing people to shop at discount stores and cut back, and this only hurts the socioeconomic classes below them, pushing everyone towards the lower class.
This is the problem with inflationary money that’s printed at unpredictable rates. When one saves in Bitcoin, they know with certainty how much Bitcoin supply will be here today, at the next halving, and in the next 100 years.
Unlike fiat, Bitcoin retains its purchasing power, and the price of goods goes down, not up. And that makes all the difference in the world for a household trying to put food on the table.
Until next week, keep stacking.
- N₿
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NEW: Mining the Future: A Bitcoin Halving Roundtable with Public Mining Company Titans
In this Bitcoin Halving special episode, Coin Stories hosted a roundtable with five leaders from public mining companies, including Haris Basit, CSO at Bitdeer; Fred Thiel, CEO of Marathon; Tyler Page, CEO of Cipher Mining; Zach Bradford, CEO of CleanSpark; and Nazar Khan, CTO and COO at TeraWulf.
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Wonderful. Thanks