Bitcoin is officially scarcer than gold
Also the other halving and an update on the US deficit.
Welcome to the Friday edition of the Ecoinometrics newsletter.
Every week we bring you the three most important charts on the topics of macroeconomics, Bitcoin and digital assets.
Today we'll cover:
Bitcoin is scarcer than gold.
The other halving.
The US deficit, it’s getting worst.
Each topic comes with a small explanation and one big chart. So let’s dive in.
In case you missed it, here are the other topics we covered this week:
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Bitcoin is officially scarcer than gold
You probably know about the stock-to-flow model for Bitcoin from PlanB. It was all the rage in 2020. I think it is a bit less popular these days but whatever.
The central idea behind the model is that Bitcoin’s price is driven by its scarcity. And one way of measuring this scarcity is to look at the stock-to-flow ratio. This ratio is simply the ratio of the amount of Bitcoins in circulation to the amount of Bitcoins produced via mining in a given year.
The higher the ratio the more scarce the asset (I’ll discuss next week why it doesn’t guarantee higher prices though).
For reference gold over the last 100 years has an average stock-to-flow ratio of about 66 (ranging from roughly 45 to 85 depending on the year).
During the third halving Bitcoin had a stock-to-flow ratio just below that of gold at 56. But after the halving it will jump to double that of gold making it a much scarcer asset in by that metric.
ETA for the halving? Today.
The other halving
Now the Bitcoin halving should be good for the price (if only for the narrative effect). But there is another halving going on at the moment that’s actually bad for the price. It is the Grayscale halving.
Since the launch of the spot Bitcoin ETFs in January the Grayscale Bitcoin Trust has lost half of its Bitcoin holdings. That’s 300k BTC worth of outflows that the market had to absorb.
And GBTC is still bleeding cash with 300k more left in the bank.
That’s likely to have a greater impact on Bitcoin’s price in the short term than the real halving itself.
The US deficit, it is getting worst
But if you are taking the long term view the (positive) effect of the halving or the (negative) effect of the Grayscale outflow aren’t the thing that matter the most.
Let me remind you that the macro bet behind Bitcoin is that it is a good hedge against the debasement of fiat currencies.
And especially for the US dollar the writing is on the wall. The US has not managed to run a consistent budget surplus since the 1990s. As time goes the monthly deficit are getting larger and the months of surplus are getting few and far apart.
The end game is the monetization of the US debt which will accelerate the debasement, inject more liquidity into the system and push scarce assets like Bitcoin higher.
This is the long term trade.
That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.
Cheers,
Nick
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