While there are many features that make Bitcoin special as a form of money and as a digital good, its arguably foremost unique characteristic is the 21 million coin supply cap that is enforced by the protocol.
For those unaware, there is code in the Bitcoin software that ensures that there will only be 21 million coins in existence. Ever. This is because every four years, the block reward miners receive for processing transactions gets cut in half in events known as halvings, all the way until the block reward reaches zero.
While Satoshi did not make any reference to this aspect of Bitcoin in his whitepaper, many say that it is the strict scarcity of coins that is the foremost thing that separates the cryptocurrency from the money of the world today, which central banks and governments can print at will, for the gold standard has long been abolished.
Bitcoin’s scarcity was proven on Monday when China’s central bank pumped billions into their equity markets to help mitigate a sell-off.
China Pumps Billions Into Stock Market, Proving Bitcoin’s Value
As covered briefly in previous reports from Blockonomi, the past few weeks have seen an outbreak of a new strain of virus in the coronavirus family in China.
Now, over 17,000 worldwide — in countries from China and Thailand to the United States and France — have been diagnosed with this illness, which has a relatively high mortality rate when compared to the flu.
Although measures are being taken to rapidly quarantine those affected as to prevent the coronavirus from spreading, the economy of China has already been strongly impacted: the city of Wuhan has come to a standstill, the Chinese New Year (Spring Festival) holiday has been extended country-wide per government mandate (meaning nobody can go to work), and transportation both locally and internationally has slowed dramatically.
Of course, then, Chinese stocks were affected on Monday morning when the market opened for the first time in weeks.
In the first few minutes of the open, the Shanghai Stock Exchange Composite fell by 9%, falling off a cliff.
The People’s Bank of China (PBOC) felt it necessary to react, injecting $174 billion worth of Chinese yuan liquidity into their market “via reverse repo operations,” as Reuters put it.
This sum of money is the same as Bitcoin’s entire market capitalization. As put best by cryptocurrency analyst and research Burger, “one round of quantitative easing is equal to the Bitcoin market cap… we are still so incredibly early.”
If you think you are too late with #bitcoin because it hoovers just under 10k, here is some number to put things in perspective. One round of QE is equal to the bitcoin market cap.
We are still so incredibly early…https://t.co/R80Ofz5oru
— ₿urger (@BurgerCryptoAM) February 2, 2020
He added that this simple move from the PBOC is “extremely bullish for Bitcoin by definition,” citing the sentiment that Bitcoin’s absolute scarcity only becomes more potent as more fiat money is printed.
The PBOC’s decision to pump billions into its stock market and the decision to stop people from liquidating their shares and short-selling also show how free markets can be tampered with by governments — something that hardline Bitcoiners and decentralists would be opposed to.
Other Countries Are Doing Similar
What’s crazy is that it isn’t only China that is pumping billions of dollars worth of liquidity into asset markets around the world.
Central banks in the U.S., the E.U., Japan, and most of the world’s other nations are participating in monetary that injects billions of dollars a year into the world’s economy, which many again say proves how valuable Bitcoin is in a world where fiat money is often likened to Monopoly money.
There are some that say the vast amounts of liquidity in the markets benefit Bitcoin in the short term, and rightfully so; while central banks aren’t buying BTC directly — that would be absurd — the trickle-down effect of liquidity injections should theoretically boost Bitcoin.
But as aforementioned, it should benefit Bitcoin from a longer-term perspective too, for it proves how fickle fiat money can be in comparison to a currency whose supply is mathematically enforced by thousands of computers distributed all across the globe.