Bitcoin, controlled currency supply and market cycles

The idea behind this article is to link the controlled supply of currencies and Bitcoin’s pricing mechanisms or “markets”. I’m trying to correlate Bitcoin’s money supply, the market value of Bitcoin, and its cycles and phases.

When I speak of currency supply, I am referring to their monetary policy, i.e. how the money supply or money supply is managed, that is, the amount of money available in an economy to buy goods, services and savings at a given moment. The money supply is determined jointly by the private banking system and the country’s central bank, strictly speaking in the form of “Fiat” money, the world’s most widespread form of money, Fiat “from the Latin Fiat”. let it be “”, a form of trust that is characterized by legal support from a state. The essential element for a currency to be considered fiat money is its mandatory use in a jurisdiction by imposing a legal law on means of payment or penalty payments. In simple terms, fiat money is legally spent and validated by a government or agency. Examples: US dollar, euro, Venezuelan bolívar, Argentine peso, British pound and all other reserve currencies.

The provision of currencies in fiat money is carried out centrally and is managed by the control authorities “Central Bank” and the authorized bodies “Private Banks”.

Bitcoin, controlled currency supply and market cycles
Bitcoin, controlled currency supply and market cycles

Unlike “Fiat” money, we have “Bitcoin”, which is strictly regulated and controlled by a set of rules known as “Bitcoin”.Consensus rules», Rules that serve the independent validation of transactions and the issuance of currencies are sovereignly executed by all nodes in the entire network.

Because Bitcoin is strictly regulated and autonomously controlled, objective, predictable, measurable, and rational results can be achieved on what the protocol can deliver Bitcoin is an “open source” and its blockchain is publicThis means that everyone can know and appreciate future results as well as the entire history of transaction records and currency issuance. Bitcoin is fully open and its opening is one of the design pillars.

A comment on «anarchy“In Bitcoin.

Before I go into the central theme of this article, I would like to refer to the association of Bitcoin with “anarchy”. After we have mentioned the autonomous protocol regulation, it is worth delving deeper into the literal meaning of “anarchy”, which is often misinterpreted.

The word “anarchy” is derived from the Greek “ἀναρχία” (“Anarchia”), which is composed of:

  • Prefix «αν (an)», which means «no or without»,
  • Word «αρχn (archê)», which means «origin, principle, power or mandate».
  • Suffix “ία (ia)”, which means “quality”.

The etymology of the term therefore denotes in general without principle, mandate, government and origin. We can translate it into “lack of norm”, “lack of hierarchy”, “lack of authority” or “lack of government”.

Anarchy doesn’t mean “without rules”, it literally means “without rulers, without authority, without hierarchy”.

So when we talk about Bitcoin and anarchy, keep in mind that we are referring to an “irregular rule set”. Bitcoin, which is executed by algorithms and mathematical equations without a central authority having to force, monitor or guarantee their execution, is “vires in numeris”, which means “force in numbers”.

Bitcoin is an autonomous system in which autonomy replaces authority.

Bitcoin controlled supply

Regarding Bitcoin monetary policy, anything related to it can be known. the rate of coin issuance, the chronology of these as epochs of rewards, the total supply of coins at any time in the past, present or future, etc .; This is all open source in Bitcoin.

Bitcoin is “issued or minted” at a fixed and decreasing rate during the creation of each block.

A fixed rate refers to the fact that each block is generated (mined) on average every 10 minutes and includes a subsidy for new currencies that have been created from scratch. The first transaction in each block is a special transaction and is called «Coinbase transaction“It’s special because it ista does not consume (output) UTXO (transaction output that was not output) as inputs, but only has one input (input) called «coinbase», which Bitcoin generates from scratch. The Coinbase transaction has an exit that is payable to the miner’s Bitcoin address that mined this block.

A declining rate as the currency issuing price decreases by 50% every 210,000 blocks or approximately every four years. This event is called “halving” and the block subsidy is halved. During the first four years of network operation, the block grant was 50 Bitcoin.

In a few words, the above describes the mechanism by which the money question is made in Bitcoin. If you want to get to know the dynamics of controlled currency supply better, you developed it in the following video: The Bitcoin Whiteboard # 0001 – Bitcoin Economy and Currency Creation.

Here is the schedule for coin issuance from the beginning to a future moment that will lead us to the # 5 reward era. In each halving there is a graph in which you can see the relationship between currency emissions and market dynamics, cycles and their phases. A detailed observation of the graphics helps you to form your own judgment.

Genesis block

Block “0”, January 3, 2009

Reward time # 1

Block allowance = 50 Btc

Duration, block interval {0 – 219999}

Number of coins added to the current total = 10,500,000 Btc

Halving 1

Block 210000, November 28, 2012

BraveNewCoin Liquid Index for Bitcoin Chart (weekly scale). Halving 1

Reward time 2

Block allowance = 25 Btc

Duration, block interval {210000 – 419999}

Number of coins added to the total amount in circulation = 5 250 000 Btc

Halving 2

Block 420000, July 9, 2016

BraveNewCoin Liquid Index for Bitcoin Chart (weekly scale). Halving 2

Reward time 3

Block allowance = 12.50 Btc

Duration, block interval {420000 – 629999}

Amount of coins added to the outstanding amount = 2,625,000 Btc

Halving 3

Block 630000, May 11, 2020

BraveNewCoin Liquid Index for Bitcoin Chart (weekly scale). Halving 3

Reward time # 4 (available)

Block allowance = 6.25 Btc

Duration, block interval {630000 – 839999}

Number of coins added to the amount in circulation = 1 312 500 Btc

Halving 4

Block 840000, estimated time of occurrence April 11, 2024 (at the time of writing this article July 20, 2020)

Reward time # 5

Block allowance = 3,125 Btc

Duration, block interval {840000 – 1049999}

Number of coins added to the total amount = 656 250 Btc

In this way, the controlled supply of coins is continued Until block 6720000, approximately in 2137, the block subsidy reached the minimum currency unit of 1 satoshiThat is, in each block, 0.00000001 Btc (1 Satoshi) will eventually be created as new coins after 210,000 blocks, and from a reward period in which the amount of coins added is 0.00210000 Btc (210,000 Satoshis)) At block 6930000, the total supply of coins, which is almost 21,000,000 Btc, is reached approximately in 2140.(20 999 999 977 Btc). Regardless of the number of coins available, the most remarkable thing is that the entire fixed offer reaches its asymptotic limit and is “finished” at this level. Bitcoin cannot be inflated through monetary expansion.

As mentioned at the beginning, this idea aims to use data from the three completed reward phases of the Bitcoin offer to find a connection between market cycles and currency creation. At the time of writing this article (July 20th, 2020) and as you can see in the following graphic, Bitcoin is entering a fourth cycle:

BraveNewCoin Liquid Index Chart for Bitcoin (weekly scale). Macro view

Each market cycle consists of four phases:

  • Lateral trend: It is the halving phase in which the value looks for the direction in which it should go in the future, also known as the indecisiveness market.
  • Upward trend
  • Downward trend
  • Restoration / distribution

As you can see from the diagrams, there is a similar pattern after each halving. It seems that this triggers bullish trends, but it is difficult to go beyond a simple assumption because there is not enough data to say more. Only 3 halves have occurred. Bitcoin enters a fourth cycle (reward era # 4) and is more specific One could say that it is in a transition phase between the recovery phase, the distribution and the lateral trend.

In conclusion, the most notable feature of the Bitcoin economy is its monetary policy, which compares the certainty of its limited supply (known) with the uncertainty of its demand (unknown). Bitcoin’s emission rate is very predictable and unlike other assets, currencies or service products The final delivery is a known amount of 21,000,000 Btc that has been set from the start. This function makes the delivery of Bitcoin almost inelastic. Regardless of how high the value is, miners will not receive more rewards than the prescribed amount. Even increases in value won’t even lead to an accelerated Bitcoin problem.

The inelasticity of the offer largely explains why Bitcoin is so volatile. Products with an inelastic supply react more strongly to changes in demand than products with an elastic supply. The same applies to demand. The more inelastic the demand, the greater the price changes in response to small fluctuations in supply or demand.

Bring important information

  • The purpose of mining is to secure Bitcoin locally. Mining is the mechanism that supports the decentralized clearing house through which transactions are validated and processed (confirmed).
  • The creation of a block subsidy currency is part of the incentive mechanism, also known as the “mining premium”. and aligns miners’ actions to the security of the network as the money supply is implemented.
  • The ability of an asset to be used as a “store of value” It is encouraged by current expectations regarding future demand and supply of this asset. In the case of Bitcoin, future demand is unknown and future supply is known. In other words, they are expectations that counteract the uncertainty about demand versus the security of supply at a future time.
  • Bitcoin’s value is an effect of its introduction, its value increases because it is accepted, Bitcoin is not accepted because its value increases.
  • In fiat money systems, only the institutions responsible for monitoring, regulating and managing the system have knowledge of the monetary policy to be implemented. These systems always produce irrational results and, for most, cannot be estimated in advance. They are decisions that are made from positions. Trust powers are hierarchical trust systems in which few choose for many. Bitcoin is a flat trust system with decisions by many to many.

Author’s note:

This article is not investment advice or speculative measure. Use this idea as a reference, but not as a single reference. The main reason is to encourage the analytical and critical thinking of the readers.

This is an opinion, and Cointeleraph does not necessarily follow the ones expressed by the author here

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