What if all the printed money went straight to Bitcoin?

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An experiment of thinking about the value of bitcoin if the Federal Reserve started stacking up when bitcoin was created.

If you’ve fallen far enough into the rabbit hole, you know that the bitcoin funding schedule currently rewards 6.25 new bitcoins every 10 minutes, on average, to miners as a reward for successfully finding a valid nonce and to commit a new block of transactions in the blockchain. . This distribution schedule, the “block subsidy”, is Satoshi Nakamoto’s solution to the problem, or question, of “how to fairly distribute this new currency into the hands of new users?” There was no premine (looking at you, Vitalik), and the genesis block that Satoshi mined before releasing the code had a block reward that was not spendable. The block grant started at 50 bitcoins and is cut in half per program every 210,000 blocks, roughly every four years. The current reward is 6.25 bitcoins per block. This means that currently every 10 minutes 6.25 new bitcoins are issued and added to the total number of bitcoins. When people talk about the hard cap of 21 million bitcoins, it depends on the initial reward of the block of 50 bitcoins and the subsequent halving schedule. In other words, 21 million happens to be the asymptote of the function below.

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The number is arbitrary. It could be five or five trillion. What matters is that this procurement schedule is known in advance and cannot be manipulated by a centralized authority.

When thinking about the future purchasing power of bitcoin in today’s dollars, there are many useful frameworks to consider: stock to flow, fixed income market cap, real estate market cap. world, market capitalization of gold, silver, etc. Each of these approaches has their valid merits and criticisms.

With 6.25 new bitcoins minted every 10 minutes, on average now, that’s 675,000 bitcoins over the next 25 months, before the next halving. That makes a lot. I’ve been thinking about different ways to estimate the long-term purchasing power of bitcoin going forward, and I think the following framework is an interesting approach using data on the M2SL money supply metric as reported. by the Federal Reserve.

(Source)

M2SL money supply on January 3, 2009: $ 8.27 trillion.

M2SL money supply on October 10, 2021: 21 $ 19 trillion.

M2SL money supply has grown by $ 12.92 billion over the past 12 and a half years. That’s roughly $ 19.54 million every 10 minutes for the past 10 years. From the block height of 630,000, the bitcoin block reward grant is 6.25 bitcoin. So for every bitcoin minted in the current subsidy era, $ 3.13 million is added to the money supply. This approach assumes that the banknote printer has operated at a constant rate for the past 12 and a half years. This is a very conservative approach given the parabolic increase in money printing that unelected Federal Reserve bureaucrats have applied to the money printing rate, as well as the consistent scheduled reductions in the inflation schedule. bitcoin.

A bitcoin is expected to be worth $ 3.13 million today.

Consider the following adjustments to this evaluation framework for each grant period in the bitcoin supply schedule.

On the date the Genesis block was mined, January 3, 2009, when the block reward was set at 50 bitcoins, the M2SL money supply was $ 8.27 trillion.

On the date of the first halving, November 29, 2012, when the overall reward was reduced from 50 bitcoin to 25 bitcoin, the M2SL money supply was $ 10.45 trillion.

The M2SL money supply increased by $ 2.18 trillion between the genesis block and the first halving, the 50 bitcoin block subsidy reward era. This equates to roughly $ 10.74 million every 10 minutes from January 2009 to November 2012. So for every bitcoin hit from the Genesis block at the first halving, $ 215,000 was added to the money supply.

A bitcoin should have been worth $ 215,000 in 2012.

On the date of the first halving, November 29, 2012, when the overall reward fell from 50 bitcoin to 25 bitcoin, M2SL money supply was $ 10.45 trillion.

As of the second halving date, July 10, 2016, when the overall reward dropped from 25 bitcoin to 12.5 bitcoin, the M2SL money supply was $ 12.89 trillion.

M2SL money supply grew by $ 2.44 trillion between the first and second halving, the 25-bitcoin block subsidy reward era. This works out to roughly $ 13.12 million every 10 minutes from November 2012 to July 2016. So for every bitcoin minted from the first half to the second half, $ 525,000 was added to the money supply.

A bitcoin should have been worth $ 525,000 in 2016.

As of the second halving date, July 10, 2016, when the overall reward dropped from 25 bitcoin to 12.5 bitcoin, the M2SL money supply was $ 12.89 trillion.

As of the third halving date, May 11, 2020, when the block reward fell from 12.5 bitcoin to 6.25 bitcoin, the M2SL money supply was $ 17.89 trillion.

M2SL money supply grew by $ 5.5 trillion between the second and third halving, the 12.5 bitcoin block subsidy reward era. This works out to roughly $ 25.16 million every 10 minutes from July 2016 to May 2020. So for every bitcoin minted from the second half to the third half, $ 2.01 million was added to the money supply.

A bitcoin should have been worth $ 2.01 million in 2020.

As of the third halving date, May 11, 2020, when the block reward fell from 12.5 bitcoin to 6.25 bitcoin, the M2SL money supply was $ 17.89 trillion.

As of this writing, December 4, 2021, M2SL money supply is $ 21.19 trillion.

M2SL money supply increased by $ 3.3 trillion between the third halving and today. This works out to roughly $ 44.91 million every 10 minutes from May 2020 to December 2021. So for every bitcoin hit from the third halving until today, $ 7.18 million has been added to the money supply. .

A bitcoin is expected to be worth $ 7.18 million today.

Clearly, bitcoin has significantly underperformed this valuation framework historically. It should be noted, however, that the price of bitcoin has systematically closed the gap between this valuation framework and reality. As of November 2012, bitcoin was around $ 13, or 0.006% of the price target of $ 215,000. As of July 2016, bitcoin was around $ 587, or 0.112% of the price target of $ 525,000. As of May 2020, bitcoin was around $ 9,671, or 0.480% of the price target of $ 2.01 million. At the time of writing, bitcoin costs around $ 49,257, or 0.686% of the price target of $ 7.18 million.

Consider the following two facts:

1) The bitcoin block reward subsidy is immutable and its scheduled reduction is a certainty.

2) The money printing rate of central banks around the world will increase at an increasing rate.

Considering these two facts, a reasonable conclusion is that the price of bitcoin in US dollars will continue to converge with the valuation framework presented above, with the actual price as a percentage of the target price trending towards 100% while the US dollar money supply continues to increase. grow as bitcoin’s money supply grows at an increasingly smaller rate.

If you’re not careful, you probably should be.

This is a guest article by Scott Marmoll. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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