Why the Halving and Scarcity is Important for Bitcoin

The fourth Bitcoin halving, which took place at the 840,000th block this weekend, is a pivotal event that underscores the principle of scarcity in Bitcoin’s economic model. This mechanism directly impacts the supply and scarcity of Bitcoin, reinforcing its status as a unique asset.

During this recent halving, the rewards for mining new Bitcoin blocks were cut in half, from 6.25 BTC to 3.125 BTC, effectively reducing the rate at which new Bitcoin is issued. Karim Chaib, CEO of the crypto platform Dopamine App, emphasizes the importance of this halving event in creating scarcity, a critical factor in determining the value of an asset.

“Scarcity is a fundamental economic principle that affects the value of an asset,” he explains. “By programmatically ensuring that the supply of Bitcoin increases at a slower rate over time, the halving events underscore Bitcoin’s scarcity.”

Bitcoin’s halving is hard-coded into the network’s protocol, occurring every 210,000 blocks mined, approximately every four years. The first halving in 2012 reduced Bitcoin’s issuance rate from 50 BTC to 25 BTC per block, with subsequent halvings in 2016 and 2020 further reducing the rate to the current 3.125 BTC.

This fixed scarcity feature distinguishes Bitcoin from traditional store-of-value assets like gold, which can become less scarce as new extraction and production methods are developed. Bitcoin, with its capped supply of 21 million coins, is inherently resistant to inflation. Chaib explains that this characteristic differentiates Bitcoin from other assets.

Jonas Simanavicius, co-founder and CTO at Syntropy, notes that Bitcoin’s deflationary design makes it the first reliable alternative to gold, traditionally valued for its slow-growing supply. Simanavicius points out that while gold has served as a store of wealth for thousands of years, Bitcoin is the first asset with a mathematically programmed slow-growing supply.

Bitcoin’s economic design has contributed to its significant price growth. In the past year, Bitcoin’s price has risen by 122%, while gold has increased by 19%. In 2024, Bitcoin has gained over 51% year-to-date (YTD), compared to gold’s 15% increase, according to TradingView.

While precious metals and real estate have long been considered the best store-of-value assets, the digital age seeks more liquid assets for faster transactions. Simanavicius notes that Bitcoin’s growing computational power and decentralization offer unique benefits such as immediate transactions, geopolitical decentralization, and ease of portability, making it increasingly attractive to investors and institutions.

Overall, the halving mechanism reinforces Bitcoin’s scarcity and strengthens its position as a deflationary asset, contributing to its appeal as a modern store of value in the digital era.