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Cryptocurrencies

Bitcoin halving to boost its appeal as inflation hedge

Reduction of cryptocurrency's supply comes as central banks open money spigots

Some investors expect bitcoin to buck the inflation trends affecting global currencies during the coronavirus pandemic.   © Reuters

TOKYO -- Bitcoin has drawn renewed interest from investors seeking inflation-resistant assets at a time when central banks are printing more money to prop up flagging economies.

Supplies of the virtual currency were halved at around 5:00 a.m. Tuesday, Japan time, a feature that is built into its algorithm and occurs every four years. Now, only one-eighth the number of bitcoin will be rewarded to miners compared with to the amount at the crytocurrency's inception.

The previous two times bitcoin was halved, its market value jumped. When bitcoin was first halved in November 2012, the reward for mining a block on the digital ledger shrank to 25 coins from 50 coins. The next halving slashed the reward to 12.5 bitcoin, and the latest will bring the yield to 6.25 bitcoin per block.

The latest iteration comes amid the coronavirus pandemic and the inflation pressures created by aggressive stimulus policies around the world.

After suffering a slump in February and March of this year, bitcoin now trades for around $10,000 per coin, according to data from CoinDesk, or double a March low. Past precedent is not the only thing driving up the price of the digital currency.

"Bitcoin reminds me of gold when I first got into the business in 1976," Paul Tudor Jones, billionaire founder of the hedge fund Tudor Investment, said in a note to clients. "If I am forced to forecast, my bet is [the best asset] will be bitcoin."

Central banks around the globe have latched on to quantitative easing to combat the effects of the COVID-19 pandemic. Due to the outsize supply of sovereign legal tender, conventional monetary thinking holds that currency values will fall, opening the door to inflation.

Meanwhile, bitcoin is being held up as an asset poised to appreciate in value, since it is a noncentralized currency programmed to have its supply cut periodically. Gold, as cited by Jones, staged a rally during the stagflation crisis of the 1970s.

It remains unclear if Bitcoin's value will remain on an upward trend. Its share of the market capitalization of all cryptocurrencies hovers in the 60% range, down from the 80% range in 2017. Furthermore, central banks are looking to roll out their own digital currencies. The arrival of state-guaranteed cryptocurrencies could undermine bitcoin's prestige.

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