This Mine’s Supply Was Just Cut in Half

Matthew Carr By Matthew Carr, Emerging Trends Strategist, The Oxford Club

Metals

It’s an election year.

And during every U.S. presidential election year, this mined asset sees its available new supply cut in half.

It happened in 2012. It happened this year… just days ago. And it will happen in 2020.

Over the past year, this asset’s price has risen more than 138%. It’s outperforming almost every other commodity in the market.

And just this year, its price is already up 50%.

As I mentioned, the available new supply was just cut in half. The last time this event happened, its price skyrocketed thousands of percent in less than a year.

Now that this finite resource just became even harder to mine, its price will jump again.

I’m talking about bitcoin.

One-Year_Performance_of_BitcoinThe digital cryptocurrency is something folks either love or hate.

There seems to be no in between. I know bitcoin believers who think traditional investors are suckers for not owning at least some bitcoin. And I know bitcoin dissenters who believe it’s a fad, easily stolen and not worth the effort.

Now, bitcoin mining isn’t done in the traditional sense.

To mine bitcoin, miners use high-powered computers to solve complex equations called “blockchains.” Once a miner completes a block and provides proof of their work, they receive bitcoins as a reward.

Regardless of how you feel about it, bitcoin does have at least one intriguing aspect.

It’s limited. It’s a finite currency. We know how many bitcoins can be issued: 21 million.

Bitcoin was designed to be the exact opposite of every other currency that’s ever existed. For example, you can devalue the U.S. dollar and create inflation over time by printing more U.S. dollars.

But instead of having an increasing pool like the U.S. dollar and other currencies, bitcoin has a finite pool. It can’t increase beyond that 21 million.

When bitcoin was created by Satoshi Nakamoto, he designed it so it would take 100 years to mine all 21 million bitcoins. It takes four years to complete 210,000 blockchains. For every 210,000 blockchains solved, the number of new bitcoins and rewards are halved.

During the first 210,000 blockchains, 10.5 million new bitcoins were issued, as miners could receive a maximum of 50 bitcoins per blockchain. During the second set of blockchains, 5.25 million new bitcoins were created, as rewards were halved to 25 bitcoins per blockchain. And now, during the third set of blockchains, 2.625 million new bitcoins will be issued as miner rewards drop to 12.5 bitcoins per blockchain.

The halving will continue until all 21 million bitcoins are issued.

The first halving took place on November 28, 2012. Bitcoin was trading at $12.27 at that time. One year later, it traded at $1,037.75… an increase of 8,457.62%.

It’s clear that the price of bitcoin moves on supply versus demand.

The second halving event took place at 11 a.m. last Saturday.

If history repeats itself, bitcoin could jump from its current price of around $660 to $55,820 within the next year.

Now, because of this limited pool of bitcoin, for many it’s emerged as a pseudo “safe haven” and an alternative asset for diversification.

The fluctuations in the U.S. dollar or the British pound could spark major swings in bitcoin as investors race into the currency… just as they do with gold and silver.

But bitcoin is far more volatile than any precious metal. For example, in the week leading up to the Brexit – when the world was complacent that the U.K. would vote to stay in the European Union – the price of bitcoin tumbled. Bitcoin went from $773.94 to $566.99 – a drop of 26.7%.

Moves of 5% or more in a day are common.

In the aftermath, momentum has shifted and bitcoin has regained some of its price, now trading at about $660. But – thanks to the recent halving event – bitcoin has the potential to soar back to the $700s and much higher.

Investing in bitcoin can be accomplished a couple of different ways. You can buy bitcoin from a dealer, like Coinbase.

You could also soon opt for a bitcoin ETF. The Winklevoss twins – founders of HarvardConnection (allegedly the original Facebook), venture capitalists and bitcoin enthusiasts – have been on a mission over the last three years to launch a bitcoin exchange-traded fund. The Winklevoss Bitcoin Trust will trade under the symbol “COIN,” and the price per share will be one-tenth bitcoin’s price. The regulatory filings are in a mature stage, which means a final decision on the launch is a matter of “when” not “if.”

So investors can wait for this launch or diversify with actual bitcoin now.

Bitcoin has already surged in 2016 with uncertainty over the rest of the world’s currencies. And of course, the dual events of a U.S. presidential election and the halving have fueled the cryptocurrency’s price increase. These two events will forever be intertwined.

Over the past year, bitcoin’s price has more than doubled. But as we’ve seen in the past, there’s a lot of potential for a surge in the months and years ahead because of the halving. And it’ll happen every four years… It’s easy to remember: Every time Americans vote for a new president, the new supply of bitcoin will fall by 50% and bitcoin prices should jump.

Good investing,

Matthew