Bitcoin’s halving, scheduled for May 2020, has everyone talking, with many focusing on the mining rewards that will be enforced after the event.
One among these theorists is Anthony Pompliano, Managing Partner at Morgan Creek Digital, and outspoken Bitcoin bull. In a recent tweet, Pompliano equated the top cryptocurrency’s halving principle to the top fiat currency, the US Dollar [USD].
Pompliano focused the effect on the banking class, which has been leaning towards the cryptocurrency market off-late with the crypto-craze turning the likes of Fidelity, Etrade, and JP Morgan. Another important premise for the USD-halving effect was the ‘unlimited supply’ of the fiat currency, which can be minted by the US Federal Reserve, unlike Bitcoin which has a fixed cap of 21 million.
The Morgan Creek executive suggested, based on the above premise, that if the USD endured a periodic halving, bankers would be “FOMOing” all over the place.
His tweet, in full, hypothesized,
Imagine if daily printing of US dollars was suddenly cut in half forever. Bankers would be FOMOing even though USD isn’t a scarce asset.
Now imagine what they’re going to do when the daily Bitcoin supply is cut in half for one of the scarcest assets in the world.
I can’t wait.
— Pomp 🌪 (@APompliano) May 22, 2019
Presumably, Pompliano’s tweet was meant to reflect the supply-control inconsistencies of the USD versus Bitcoin, and the reaction of the banking class to the same, from an investment point of view.
Frances Coppola, a prominent financial journalist, hit back at Pompliano for mulling this mirror effect from within his “bubble.” She stated that USD supply is decreasing due to the Fed ‘burning’ fiat currency, rather than printing more of it, with the intention of reducing the supply on a “permanent” basis.
There isn’t “daily printing of US dollars”, Pomp. In fact if you had been paying attention to what goes on outside your bubble, you would know that US dollars are actually being burned. The supply is being reduced as we speak and the intention is that this should be permanent. https://t.co/tKJJ5pbkiZ
— (((Frances Coppola))) (@Frances_Coppola) May 23, 2019
Pompliano responded by questioning if Coppola believed that the US government does not engage in the printing of its fiat, to which the latter responded that her statement was in reference to the Fed “reducing the supply” by burning USD.
Despite this back-and-forth and the “printing” and “burning” of fiat currency, as opposed to cryptocurrency, is the will of a single entity, the US government. On the flipside, Bitcoin and its halving takes place with the production of every 210,000th block, or every four years.
This halving cuts rewards, which currently stand at 12.5 BTC per block and are set to drop to 6.25 BTC per block in May 2020, thereby aiming to self-control the supply of BTC in the market. As mining rewards dip, miners would shy away from the market as their profits are cut in half. This ‘fear’ would cause an increase in the price for the cryptocurrency to continue production. Hence, the inflationary effect is balanced.
Unlike the USD, Bitcoin being decentralized does not have one entity controlling supply. Hence, “printing” or “burning” cannot take place at will to control macroeconomic factors. This point, despite not being emphasized by Pompliano, is an important demarcation between Bitcoin and the fiat world.
To further the debate, Coppola added that the halving would in fact, dent Bitcoin’s prospects of being a world currency. In light of the cryptocurrency falling short of this feat, she stated, “Bitcoin is an asset, not a currency,” referencing the words of Chris Cook from Market 3.0.
Cook’s “Currency paradox,” detailed the equation of Bitcoin as a method of payment relative to its drop in liquidity that will happen periodically with the passing of every halving. The “Currency paradox” read,
Currency paradox: to the extent a currency is scarce it’s not liquid, and to the extent it’s liquid it’s not scarce. Currencies do not have a market cap denominated in another unit of account: assets do @APompliano
— Chris Cook (@cjenscook) May 23, 2019
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