Bitcoin’s Quantitative Hardening vs Fiats Quantitative Easing (QE)

Bitcoin halvening is approx 31 days and a few hours away. Its that event when the Bitcoin block rewards are cut into half or divided by 2, effectively reducing the speed, by which new BTC units are brought into circulation. Bitcoin’s Quantitative Hardening vs Fiats Quantitative Easing (QE)

On May 13, 2020 the Bitcoin rewards will be cut by 12.5 BTCs per block to 6.25 BTCs. This undoubtedly, as the previous two halvenings have shown, will have a positive effect on the price of Bitcoin (BTC), most probably causing it to rise higher than before, as seen in the previous two such events.

The crypto world is abuzz with the word of “Quantitative Hardening” to describe the effect, which will be caused by the halvening. However what is it?

Origin Of Concept – Quantitative Easing (QE)

Before understanding the concept of Quantitative Hardening, its vital to understand the origin of the concept, which comes from an unconventional monetary policy used by the central banks. The Quantitative Easing.

Simply put, the Quantitative Easing refers to the central bank’s action of buying selected assets like stocks. etc., by printing more money, thus increasing the money supply and pumping the liquidity in the system. This has the effect of encouraging economic activity – namely lending and investment.

However, due to the increasing supply of money and more money chasing a fixed number of assets, it has the unintended consequence of causing inflation.

It expands the central bank’s balance sheet and with the new assets purchased to stimulate growth – the liabilities. This is usually carried out in times of hardship and low or stagnant economic activity.

Bitcoin's Quantitative Hardening vs Fiats Quantitative Easing (QE)

Blockstream CEO Adam Back Says Bitcoin Halving Is ‘Quantitative-Hardening’

Here is a tweet from Adam Back:

bitcoin halving is “quantitative-hardening”

fiat undergoing lots of politically driven quantitative easing.

bitcoin supply algorithm starts quantitative hardening next month.

(@pwuille quantitative hardening pun in bitcoincorrr rebrand joke. I like quantitative hardening!)

— Adam Back (@adam3us) April 2, 2020

He then went on to say:

people talk about hard money – bitcoin quantitative hardening is the sound of #bitcoin getting even harder.

all while the world loses its fiat mind and plummets into quantitative easing infinity.

— Adam Back (@adam3us) April 2, 2020

So, What Is Quantitative Hardening (QH)?

Bitcoin is devoid of any central authority. It doesn’t have any office, any board of directors and policy makers. It operates under a fixed set of rules, policies and parameters.

Bitcoin total supply is 21M. Its block resolution time is 10 minutes and difficulty is readjusted to accommodate for hashing power, available to the network, every 2 weeks. Its reward decrease after every 210,000 blocks, when the block reward is cut by half. It effectively reduces the supply coming into circulation. The initial block reward was 50 BTCs for mining successfully.

Bitcoin has seen two previous halvening events. The first one was in Nov 2012, when the rewards decreased from 50 BTCs to 25 BTCs. The second was in Jul 2016, when the reward decreased from 25 BTCs to 12.5 BTCs.

After both of these events, the Bitcoin price rose higher and touched new All Time Highs (ATH). Actually, it is the result of the value of an asset, rising due to scarcity, in the face of rising or even constant demand.

Bitcoin third halvening is just over a month away and most probably history will repeat itself. Hence, its not surprising that crypto enthusiasts have coined the no-brainer term of “Quantitative Hardening” to refer to the effect of such an event.

Unlike the central bank printing more money to increase liquidity, purchasing assets like stocks, etc. and thus devaluing the purchasing power of the currency by inflation.

Bitcoin reduces annual inflation by halvening after 210,000 blocks or roughly 4 years. This reduces the amount of tokens, entering into circulation, reducing inflation rate.

And no, Bitcoin doesn’t purchase assets to expand its balance sheet and thus liabilities.

This can be referred to as “Quantitative Hardening” since it works opposite to the central bank’s monetary policy of “Quantitative Easing”.

Bottom Line

So, Bitcoin reduces inflation, unlike central banks raising it. Essentially, hardening the digital asset against loss in purchasing value.

Bitcoin current inflation rate is 3.65% per annum, which will go down to 1.80%, after the halvening event on May 13, 2020. The premier digital asset will increase its scarcity and thus value, unlike the traditional FIAT which keeps on entering circulation infinitely, losing its value over time.

Bitcoin will quantitatively harden, offering a secure long term hedge against inflation and further cement its position as the safe haven asset, in times of uncertainty and turmoil.

Updated: 9-22-2021

ECB To Weigh QE Boost When Covid Bond Buys End, Muller Says

The European Central Bank will discuss boosting its regular asset purchases once the pandemic-era emergency stimulus comes to an end, but any such increase is by no means guaranteed, Governing Council member Madis Muller said.

While the euro area’s recovery should allow the ECB to end its 1.85 trillion-euro ($2.2 trillion) pandemic bond-buying program in March, officials will discuss how to avoid derailing the rebound when support is pulled back. One option would be to expand the pre-crisis plan above the current 20 billion euros per month, Muller said in an interview in Tallinn.

His remarks point to the potentially contentious debate that awaits policy makers, especially those who worry that a return to the pre-Covid set-up would hit heavily indebted countries not yet ready to function without extraordinary ECB support.

“I realize that it would be a problem if there is a very sharp cliff effect at the end of the pandemic emergency purchase program,” the Estonian central bank chief said.

He later elaborated in a tweet that “I am not sure if increasing the volume of APP purchases in the spring is the best way to avoid a cliff effect.”

Just to be clear. We should openly discuss all options. But given the currently very favorable financing conditions and the solid recovery, I am not sure if increasing the volume of APP purchases in the spring is the best way to avoid a cliff effect. https://t.co/52QTV1vbuI

— Madis Müller (@madis_muller) September 22, 2021

A potential increase in the older quantitative easing program is “part of the discussion we will have on how to phase out PEPP and what it would mean for asset purchases going forward,” according to Muller. “And of course the decision will depend on market conditions next spring and the economic outlook at that point.”

Benchmark German bonds erased a decline shortly after the interview, with 10-year yields trading little changed around -0.32%.

Muller’s Greek counterpart, Yannis Stournaras, this week cautioned against drawing early conclusions about ending crisis aid, saying it would be “really arrogant on our part to declare victory” already.

Yet others have sounded optimistic about the euro area’s prospects recently. Executive Board member Isabel Schnabel said Monday that the recovery is well on track, and Vice President Luis de Guindos pointed to a strong performance in the second and third quarter.

“Given the recovery that we’re seeing in the economy, also the outlook for inflation and most importantly the extremely favorable financing conditions that we continue to have in the euro area, we should be able to end PEPP in March as it has been communicated and as it has been the original plan,” Muller said. “If you ask what is the most likely outcome then to me personally, this is the base case.”

Inflation Worry

Like other Governing Council members, he also said he’s skeptical about the idea of redesigning the old program to include more flexible features that helped the ECB cushion the blow of the pandemic.

“I think we need to be careful there because we might be running into some legal constraints,” Muller said. “I don’t think we can take the flexibility that was there for PEPP and just transfer it to the previous asset purchase program. It was warranted in this particular pandemic-related crisis situation.”

On inflation, Muller said he agrees with views that prices will accelerate faster than current ECB projections indicate.

“Looking at possible factors that could be pushing prices higher and those that could be pulling it lower, the factors pushing prices higher seem to be stronger at the moment,” he said. “It’s more likely that we will have inflation, for example, in 2023 higher than 1.5% rather than lower. The same probably applies for the 1.7% inflation forecast for 2022.”

China Pumps $17 Billion Into System Amid Evergrande Concerns

China’s central bank net-injected the most short-term liquidity in eight months into the financial system, with markets roiled by concerns over China Evergrande Group’s debt crisis.

The People’s Bank of China pumped in 110 billion yuan ($17 billion) of cash with seven- and 14-day reverse repurchase agreements. That was the largest addition through open-market operations since late January, when a funding squeeze sent interbank rates soaring.

Prior to Thursday, the PBOC had injected liquidity for three straight sessions, stoking bets that Beijing hopes to soothe market nerves over Evergrande.

The need to help calm market jitters is pressing, as concerns over Evergrande’s ability to make good on its liabilities spills over into global markets. Focus is on whether the developer can pay $83.5 million of interest due Thursday on a five-year dollar note. The coupon on the security, which has a 30-day grace period before a missed payment would constitute a default, is part of $669 million of bond interest due through the end of this year.

“The entire real estate sector, and consequently, financials, are in question, and vague statements to avoid defaults won’t cut it for long,” said Craig Botham, chief China economist at Pantheon Macroeconomics Ltd. “The PBOC’s reserve-requirement ratio cut is now more necessary than ever.”

Short-term interbank rates fell due to the PBOC’s cash injections. The overnight repo rate slid 14 basis points to 2.01%, the lowest level since Sept. 3, while the seven-day rate dropped for a third straight day. The yield on 10-year government bonds fell one basis point to 2.85%.

The indebted developer’s Hong Kong-listed shares rose on 18% Thursday. They were up as much as 32% in morning trading, as investors bet the company would avoid a disorderly debt resolution after one of its units negotiated interest payments on yuan bonds.

Apart from attempting to ease market concerns over Evergrande, authorities also tend to loosen their grip on liquidity toward quarter-end due to increased demand for cash from banks for regulatory checks. Lenders also need to hoard more funds ahead of the one-week holiday at the start of October.

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