The Halvings and Bitcoin's Monetary Policy

Rules Without Rulers

Every monetary system has a policy — a set of rules governing how new units of currency enter circulation, how many will ultimately exist, and who decides. In most systems we live under, those rules are set by people: central bankers, treasury officials, elected and unelected committees meeting behind closed doors. The rules change when the people in charge decide they should. Sometimes the changes are wise. Sometimes they are not. But the defining feature is discretion — human judgment applied in real time, subject to political pressure, institutional incentives, and the limits of what anyone can know about a complex economy.

Bitcoin’s monetary policy has no discretion. It was written once, in 2008, and it executes automatically. No committee meets to discuss it. No emergency session convenes to adjust it. The rules are embedded in the code, enforced by every node on the network, and they will run exactly as specified until the last fraction of a bitcoin is issued around the year 2140. Whether you think this is brilliant or foolish depends on your view of human institutions. But you should understand how it works before you decide.

The Issuance Schedule

When Satoshi Nakamoto launched the Bitcoin network on January 3, 2009, the first block — the genesis block — carried a reward of 50 BTC. Every block mined thereafter also carried this reward. With a new block arriving roughly every ten minutes, this meant approximately 7,200 new bitcoin entered circulation each day.

The protocol specifies that every 210,000 blocks, the block reward is cut in half. At ten minutes per block, 210,000 blocks takes approximately four years. This halving is not optional, not subject to governance, not adjustable. It is a conditional statement in the code: after a certain block height, the reward changes.

The halving history runs as follows:

• Block 0 to 209,999 (2009-2012):50 BTC per block
• First halving, November 28, 2012 :Reward drops to 25 BTC
• Second halving, July 9, 2016 :Reward drops to 12.5 BTC
• Third halving, May 11, 2020 :Reward drops to 6.25 BTC
• Fourth halving, April 19, 2024 :Reward drops to 3.125 BTC

Each halving cuts the rate of new supply in half. The first halving reduced daily issuance from roughly 7,200 BTC to 3,600. The second brought it to 1,800. The third to 900. The fourth to approximately 450. With each step, Bitcoin becomes harder to produce — not because the mining puzzle is harder (that adjusts independently via difficulty), but because the reward for solving it shrinks.

This process continues. The fifth halving will reduce the reward to 1.5625 BTC. The sixth to 0.78125 BTC. And so on, in ever-smaller increments, until the reward rounds down to zero. The total supply approaches but never reaches 21 million, asymptotically converging on that ceiling like a curve that forever bends toward a line it will never touch.

Stock-to-Flow: A Framework for Hardness

To understand why this schedule matters, we need the concept of stock-to-flow — a ratio that measures how “hard” a money is to produce. Stock is the total existing supply. Flow is the annual new production. Divide stock by flow and you get the number of years it would take, at current production rates, to double the existing supply. The higher the ratio, the harder the money.

Gold has historically had the highest stock-to-flow ratio of any commodity — roughly 60 to 70, meaning it would take over 60 years of current mining output to double the above-ground supply of gold . This is why gold has served as money for millennia. Its supply is difficult to inflate. Silver’s ratio is lower, around 20 to 25. Fiat currencies have no meaningful stock-to-flow constraint at all; new units can be created at the speed of a keystroke.

Ammous devotes considerable attention to this framework inThe Bitcoin Standard, and for good reason. After the 2024 halving, Bitcoin’s stock-to-flow ratio exceeds that of gold. There are approximately 19.7 million bitcoin in circulation , and the annual new issuance is roughly 164,000 BTC (450 per day times 365). That gives a stock-to-flow ratio of approximately 120 — nearly double gold’s.

With each subsequent halving, this ratio doubles again. By the 2028 halving, it will approach 240. By 2032, roughly 480. Bitcoin is, by this measure, becoming the hardest money humanity has ever produced. Not because anyone decided it should be, but because the code specifies it.

This is worth dwelling on. For the entirety of human history, gold was the hardest money available. Empires rose and fell around it. Wars were fought over it. Economic systems were built on it. And now a protocol running on commodity hardware across a global network has surpassed it — not through discovery of a new element, but through mathematics.

The Asymptotic Approach

A common misunderstanding is that Bitcoin’s supply cap is some future event to worry about. In practical terms, the supply cap is nearly here. By approximately 2035, over 99% of all bitcoin that will ever exist will have been mined. The remaining 1% trickles out over the following century in amounts so small they are functionally negligible.

This means the inflation rate — the rate at which new supply dilutes existing holdings — is already very low and falling. After the 2024 halving, Bitcoin’s annual inflation rate is roughly 0.83%. After the 2028 halving, it drops to approximately 0.4%. For comparison, most central banks target 2% annual inflation for their fiat currencies, and frequently exceed it.

The practical implication is that Bitcoin’s monetary policy is not something that will be good someday. It is already functioning. The disinflationary schedule has been running for over seventeen years without interruption, deviation, or amendment. Every block, every ten minutes, the protocol does exactly what it said it would do.

When Block Rewards Approach Zero

Here is the honest open question in Bitcoin’s monetary design: what happens when block rewards become negligible?

Miners currently earn revenue from two sources: the block reward (newly created bitcoin) and transaction fees (paid by users to have their transactions included in blocks). Today, the block reward constitutes the vast majority of miner revenue. As halvings continue, this shifts. Eventually, miners will need to sustain themselves entirely on transaction fees.

The question is whether transaction fees alone will provide sufficient incentive to maintain the network’s security. If fees are too low, miners may shut down equipment, reducing the network’s hash rate and making it cheaper to attack. If fees are too high, the network becomes expensive to use for ordinary transactions, potentially driving users to other systems.

This is not a crisis happening tomorrow. The transition is gradual — it unfolds over decades. And there are reasons for cautious optimism. As Bitcoin adoption grows, demand for block space may increase, naturally driving fees higher. Layer 2 solutions like the Lightning Network may handle small transactions off-chain while still generating on-chain settlement transactions that pay fees. The network’s security budget may also adjust through economic mechanisms we cannot fully predict.

But intellectual honesty requires acknowledging that the fee-only security model is unproven. It is the most significant long-term open question in Bitcoin’s design. Anyone who tells you they know for certain how it will resolve is speculating. The best we can do is monitor the transition, support research, and make decisions based on the evidence as it develops.

Algorithmic vs. Discretionary: A Comparison

To appreciate what Bitcoin’s monetary policy offers, it helps to compare it directly with the system most of us live under.

The Federal Reserve — and its counterparts in other countries — operates on discretionary monetary policy. A committee of appointed officials meets regularly to set interest rates, determine the pace of asset purchases or sales, and guide the money supply based on their assessment of economic conditions. The goals are typically stated as maximum employment and stable prices. The tools are interest rate adjustments, open market operations, and, since 2008, various forms of quantitative easing.

This system has genuine strengths. Discretionary policy can respond to crises in real time. When the 2008 financial crisis hit, the Fed could cut rates to zero and inject liquidity. When COVID-19 shuttered economies in 2020, central banks worldwide could flood markets with new money to prevent cascading defaults. Whether these interventions were wise in their scale and duration is debatable, but the capacity to act is real.

Bitcoin has no such capacity. If a crisis hits, the protocol does not care. The next block will be mined in ten minutes. The reward will be 3.125 BTC. The supply schedule will not adjust. This is either a terrifying inflexibility or a reassuring predictability, depending on your assessment of how well human institutions wield discretionary power.

The case for Bitcoin’s approach rests on a track record. The U.S. dollar has lost over 96% of its purchasing power since the Federal Reserve was established in 1913 . Not because of a single catastrophe, but through the slow, steady accumulation of inflationary policy decisions. Each individual decision may have been defensible. The cumulative result is a currency that stores value poorly over long time horizons.

The contrast in transparency is also stark. Bitcoin’s monetary policy is fully visible. Anyone can read the code, run a node, and verify that the rules are being followed. The Federal Reserve’s decision-making process, while more transparent than it once was, still involves private deliberations, forward guidance that may or may not reflect actual intentions, and balance sheet maneuvers that require specialized knowledge to interpret.

Algorithmic and transparent versus discretionary and opaque. Neither is perfect. But you should be clear about which system you are relying on and what its assumptions are.

The Price-Halving Correlation

We need to address the elephant in the room, because you will encounter it everywhere: the claim that halvings cause price increases.

The historical data shows a pattern. In the months following each of the first three halvings, Bitcoin’s price increased substantially. The 2012 halving preceded a rise from roughly $12 to over $1,000. The 2016 halving preceded a rise from roughly $650 to nearly $20,000. The 2020 halving preceded a rise from roughly $8,700 to over $60,000 .

The proposed mechanism is straightforward: halvings reduce the flow of new supply. If demand remains constant or increases, reduced supply pressure should push the price up. This is basic economics, and it is not wrong as far as it goes.

But extrapolating from three data points is dangerous. Three halvings is not a statistically significant sample. The broader adoption curve, macro-economic conditions, regulatory developments, and market sentiment all changed dramatically between each halving. Attributing the price movements primarily to supply reduction ignores confounding variables.

The 2024 halving complicates the pattern further. Bitcoin reached new all-time highs before the halving, partly driven by the approval of spot Bitcoin ETFs in the United States . Whether the post-halving price trajectory will follow previous patterns remains to be seen.

More importantly, for our purposes, it does not matter. We stated in the first article of this series that we are not interested in Bitcoin as a price speculation. The halvings matter because they define the monetary policy of the protocol — the predictable, verifiable, immutable schedule by which new bitcoin enters the world. Whether that schedule also correlates with price increases is a separate question, and one that should not drive your infrastructure decisions.

Build your understanding on what is certain: the halving schedule will execute as written. The supply will approach 21 million. The inflation rate will continue to fall. These are facts of the protocol, not predictions about markets.

What This Means for You

If you are building a position in Bitcoin as financial infrastructure — as we have framed it in this series — the monetary policy tells you something important: the rules will not change on you. Unlike a savings account whose interest rate fluctuates at the bank’s discretion, unlike a currency whose purchasing power erodes at a rate determined by a committee, Bitcoin’s issuance is fixed. You can plan around it.

This does not mean Bitcoin’s purchasing power is stable. It is not. It does not mean Bitcoin is the right tool for every financial need. It is not that either. What it means is that the protocol’s monetary policy is transparent, predictable, and resistant to alteration. In a world where the rules of money change frequently and often without notice, that is a property worth understanding.

In the next and final article, we turn from protocol to practice. If Bitcoin is infrastructure worth using, how do you actually hold it? What does self-custody mean, what does it require, and what are the real risks? The monetary policy is only as useful as your ability to control your own keys.