Coinbase: Bitcoin will highlight scarcity after halving, digital gold is worthy of the name

According to a Cointelegraph report on February 9, as baseball halving in May is getting closer, Coinbase has recently started to promote the "bitcoin is digital gold" argument.

bitcoin-lot (Image source: pikrepo )

On February 7th, an article published by Coinbase on Medium explained why halving the supply of bitcoin and the subsequent decrease in supply will further consolidate the price trend of bitcoin.

Scarcity creates value

Since the gold standard financial system was broken in 1971, the value of the US dollar has continued to decline, while the value of gold denominated in US dollars has increased by 40 times. Gold is more valuable than metals such as copper because it is more scarce and difficult to obtain than other precious metals.

Bitcoin is designed to be as scarce as gold, and the setting of a proof-of-work mechanism makes it very difficult for mining to obtain Bitcoin. In addition, Bitcoin has a great advantage over gold, that is, users can transfer funds through the Bitcoin network.

Coinbase concluded in the article:

Bitcoin has numerous technical advantages, it is accelerating its development, and as the global market matures, it will be a value storage method that can rival gold in the digital age.

Halving increases scarcity

At the beginning of the design of Bitcoin, the total supply was limited. Every time a miner mines a transaction block, he will get new Bitcoin as a reward. Since the initial 50 bitcoin rewards per block, Bitcoin has experienced two halving events. At present, the reward for each block mined is 12.5 bitcoins.

After halving in May 2020, the mining rewards for each new block (about a new block mined every 10 minutes) will be reduced to 6.25 bitcoins. This will reduce the supply speed of Bitcoin to about 1.7% per year.

Stock-to-flow (S2F) is an indicator to measure the new supply over the total supply. After Bitcoin is halved, the scarcity of Bitcoin S2F will be comparable to gold.

Coinbase states:

Gold's S2F is higher than any other metal category of commodities, and Bitcoin will soon catch up with gold.

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Bitcoin stock-to-flow chart. Source: medium.com/@100trillionUSD /

No value without demand

If there is no demand, then S2F's price prediction will fail, which applies to fiat currencies and any other commodities. As the central bank increases the supply of money, the economy will prosper accordingly. However, if money supply exceeds demand, hyperinflation will occur.

The Global Economic Policy Uncertainty Index shows that hyperinflation events have boosted global demand for safe-haven assets such as gold and bitcoin, and the recent global downturn has brought this demand to an all-time high.

Coinbase said that the above points, coupled with Bitcoin's numerous technological advances and rapid development, prove that Bitcoin has a reason to be called digital gold.

Cointelegraph has previously reported that senior employees of Coinbase and Ripple recently formed a working group to advise US regulators on policies that encourage innovation in the industry.