1/ Here is the @crypto_voices 2019 Q2 release on the global monetary base. This is the only comparable money supply with Bitcoin's 21 million. #Bitcoin is currently the 🔥11th largest money in the world. To dig deeper on what it all means, follow on below. This is installment #5.
2/ Gold & silver is base money of the past. Government fiat is base money today. It comprises both physical cash… and a digital cash component! Bitcoin may be base money of the future. Before we get to the charts, it's important to clarify a few common misconceptions in money.
3/ The first is everyone looking to value Bitcoin always jumps to the "narrow" or "broad" money supplies (M1/M2/M3). This is incorrect. The reason is those money supplies represent "claims" on something else. What is that something else? Answer: the base money supply!!
4/ Fiat base money today includes both physical (notes & coins) and digital (bank reserves at the central bank) components. Think of the digital part as the "account" each bank holds with its central bank. This & only this money supply compares economically with 21 million BTC.
5/ Another mistake that's often made when comparing bitcoins to the analog monetary world is looking at a simple chart like US M1, or Eurozone M2. Besides again being incorrect on the M1/M2/M3 comparison, this method is inadequate because Bitcoin is global, and those... are not.
7/ This top 30 base money sample in fact covers 95% of global GDP, 114 countries, and 83 currencies. Why? The euro is one reason. The other is all the remaining countries/currencies either use one of these top 30 directly, or are legally pegged or fixed to one via currency board.
10/ Final point on fiat money. The monetary base is in fact a graph of the money monopoly today; meaning, it is the source of the printing press, and only central banks control this. If you're curious where to find it, the answer is simple: the balance sheet of each central bank!
16/ Now for the main event of this analysis: Inflation. Inflation today means "price increases." It's usually measured by the central bank and usually wrong. There is no way all prices can ever be measured in a simple index. The input variables are changed all the time to boot.
17/ When we analyze inflation, we are using the classical definition, which is "monetary inflation." In other words, "money growth," or "money production." Understanding this rate of increase can be very, very helpful when trying to understand money.
18/ Inflation is one of the most important things to understand about money, in fact. Money growth inflation reflects scarcity. But to be clear... 🔥 The charts that follow have nothing to do with price growth or prices at all. 🔥
20/ But we need to look deeper. It helps to look long-term. Remember the global fiat supply curve? ☝️ In 1970, the US$ equivalent of global base money was $100 billion. Today: $19.2 trillion. What does this mean? To understand it, you need to understand compound annual growth.
21/ Compound annual growth is an extremely important metric. It's "stronger" than a simple, annual rate (cryptovoices.com/compound-retur…). We can use this rate to understand investment returns, or long-term trends like population growth. We can also derive doubling time from this figure.
24/ It should be clear why gold and silver arose as past base money. 'Twas very difficult to inflate them, and thus with low inflation rates they had long supply-doubling times. Fiat base money has typically been much quicker to double. Bitcoin... needs more explanation.
27/ To clarify, these are the long-term trends of past, present, & possibly future base money, since 1970:
✔️Gold: 1.8%, 2x in 39 yrs
✔️Silver: 1.5%, 2x in 48 yrs
✔️US$: 8.6%, 2x in 8 yrs
✔️Global fiat: 12.6%, 2x in 6 yrs
✔️50 BTC in 2009 to 21 million BTC in 2140: 10.4%
29/ Quick note on prior slide. What happened in 1999? Ppl were taking cash out like mad before Y2K. Interesting to note, 2018 and 2019's trend are the lowest (& negative) growth rates of base money ever, as central banks try to unwind the massive stimuli from 2008 through 2013.
33/ Notice the phrase "supply issuance" for Bitcoin's chart titles, & not "inflation." Bitcoin's "inflation," economically, is already "baked in." Everyone knows its max supply: 21 million coins. As already demonstrated, we can predict its growth rate & doubling rate until 2140.
34/ The fact that it's predictable makes all the difference. In money or anything, this is unique. So for Bitcoin's supply growth, "inflation" is not the best term. "Coin issuance" is more apropos, because the total supply is already known by all... unlike fiat, or even gold!!
35/ Alright. Now that we've seen all the data, let's finally take a quick detour to some price chat, because even though I told you none of the above covers prices, I know you're thinking about how all of this monetary inflation has affected or will affect prices.
36/ Milton Friedman said, "Inflation is always and everywhere a monetary phenomenon." He meant price inflation (not graphed above) always and everywhere follows money inflation (painstakingly graphed above).
37/ The rub is it is impossible to predict how and when price inflation will happen. Hate to be the wet blanket, but it's true. Hyperinflations (of prices) are impossible to predict. The best we can do is measure the money supply and its growth, as we've done here.
38/ But we can say this: If the supply of base money increases, and if there is no or a lesser increase in the demand for that money, then ceteris paribus, prices will rise. Ceteris paribus, a growing base money supply will always undermine that money's purchasing power.
39/ A few notes before the final summary. Almost done! Remember these are the top 30 currencies in the world over the past 50 years. Zimbabwe & Belarus don't make the cut; but as their market size is so tiny, their hyperinflations would barely move the needle on what's presented.
40/ For the euro, its accounting creation began in 1999, and it started circulating in 2002. The ECB estimates a physical currency stock back to 1980. So from 1980 until 1999, we do use this physical currency for euro base money inflation, and then add in bank reserves from 1999.
41/ To be absolutely clear on the global fiat blended inflation rate: it's calculated using a weighted factor of each country's base money supply, based on how large their US$ equivalent actually is, during that month. This weight evolves as more currencies are added.
42/ As mentioned, only about 15 currencies have data back to 1970. For those that weren't, they didn't factor into that period. For example, the US dollar's weight itself was 63% of the pie in 1970, and only 17% today, as (among others), data on China begins only in Dec-1999.
43/ Regarding compound annual growth rates: they're always calculated from monthly fiat unit growth, then compounded to annual (to the 12th exponent). This is necessary due to cases like Brazil and Argentina, which had 6 and 4 different currencies respectively, since 1970 alone.
44/ Continuing, a compound annual growth rate from a 1970 currency to 2019 currency doesn't make sense for Brazil. So the monthly rate must be taken across time and then compounded, ignoring those 6 months when the central bank reset (slashed zeroes) from the old currency.
45/ And finally, the mechanics of this method (compounding monthly growth rates to annual) were of course repeated across gold, silver, and bitcoin's supply curves, for consistency.
46/ On our podcast @crypto_voices, @fernandoulrich and I explore the varying economic nuances of Bitcoin as a contender for the global monetary base, for global money.
48/ The exhibits are located here: cryptovoices.com/basemoney Fiat base money is sourced from central bank balance sheets, wonderful gold and silver history from Nick Laird, and bitcoin from @coinmetrics and @coinmarketcap.
51/ More to come in the future. This summary will be covered in depth @hodlhodl's #bh2019 September conference in Riga. Any contributions will help keep up this work and are very much appreciated! 35iDYDYqRdN2x6KGcpdV2W1Hy3AjGje9oL /fin