Correlation To Risk-On Assets
For the meantime, Bitcoin continues to function as a risk-on asset. It is largely seen as a speculative and high-risk investment vehicle. In a risk-on environment Bitcoin generally tends to perform well. There has been a lot said in relation to Bitcoin’s correlation to the traditional stock market. I think for many, myself included, the original attraction to Bitcoin is its originality. Bitcoin travels its own unique path in terms of design and even price action. A maturing market will undoubtedly bring change and a shift in dynamics. Regardless of what many believe, the halving remains the most significant “scheduled catalyst” for Bitcoin’s price appreciation. That does not mean that a number of other extremely bullish catalysts are unable to create a similar effect. No, of course, they can if they are truly significant that is. However, as any market matures, it becomes more streamlined in terms of its makeup and performance.
For example, every halving has seen significant upside. In other words, any price appreciation worth noting continues to take place after the halving. However, the gains have consistently decreased with each halving event. This is what I have been saying for some time now, the halving event will continue to trigger appreciation but will become less prevalent over time. The reduction of Bitcoin being released every four years is met with an even more significant appreciation in price. If you look at the dollar value of when the block reward was 50 BTC compared to the current block reward, it is much more financially viable to receive less BTC at even current prices, as opposed to any of the more recent block rewards. You can factor inflation into the picture, the result remains in favor of receiving less BTC in an appreciating market.
In terms of issuance, it is important to note that this is about a 50% reduction in supply. Whether it is one or fifty 50 BTC is inconsequential. What matters is that relatively speaking, each halving experiences a 50% reduction on the existing issuance. As mentioned, in terms of price, the “financial gain” increases in real terms over time even though the reward decreases. Simultaneously, available units are decreasing. Even though the amount of BTC hitting the exchanges from miners in the future will be less, it will be more in dollar terms. When we speak of trading volume, nobody refers to how many BTC were traded on Binance on any particular day, week, or month. No, we speak in terms of dollars. In regards to the number of units decreasing, the amount in dollars is increasing due to an actual increase in market cap, ultimately keeping it viable for miners, while simultaneously decreasing the inflation of the actual supply. In other words, lowering the percentage of supply going to exchanges from miners, while simultaneously increasing the value of the asset, which keeps mining profitable. This keeps the supply/demand dynamic in favor of continued price appreciation.
To suggest that decreasing the supply has no effect on the value is the equivalent of suggesting that increasing the supply has no effect on the value. Wouldn’t that be a dream come true? That’s where American policymakers live. Your dollar buys less today, not because of a war, but because of an inflated supply. Newly printed dollars do not simply acquire value. Their value is taken from existing dollars in circulation. Existing valuation is now shared amongst a larger “pool”, which ultimately means that everyone holding a dollar receives less.
It is quite simply this dynamic that continues to offer hope that Bitcoin can eventually decouple for good from all other assets, at least to a large extent. When you combine the property of self-custody, the case for Bitcoin as a long-term investment vehicle becomes even more viable in a world of increasing uncertainty. Traditional shares and stocks sit on third-party platforms. Bitcoin can be removed and placed in private storage. My guess is that as time passes this will become something of increasing value and desire.