For thousands of years, gold has always been mankind’s hardest money.
That is all set to change in a few days, and most people have no idea.
“Hardness” does not mean something that is necessarily tangible or physically hard, like metal.
Instead, it means “hard to produce.” By contrast, “easy money” is easy to produce.
The best way to think of hardness is “resistance to debasem*nt,” which helps make it a good store of value—an essential function of money.
Would you want to put your savings into something somebody else can create without effort or cost?
Of course, you wouldn’t.
That would be like storing your life savings in arcade tokens, airline frequent flyer miles, or central bank confetti.
What is desirable in a good money is something that someone else cannot make easily.
For example, imagine the price of copper going 5x or 10x.
You can be sure that would spur increased production, eventually expanding the copper supply. Of course, the same is true of any other commodity.
That’s why there is a famous saying in mining: “The cure for high prices is high prices.”
The dynamic of higher prices incentivizing more production and ultimately more supply, bringing prices down, exists with every physical commodity. However, gold is the most resistant to this process.
That supply response is why most commodity prices tend to revert around the cost of production over time.
This dynamic is even more profound with money.
When an asset acquires monetary properties, the natural reaction is for people to make more of it—A LOT more.
This is known as the “easy money trap.”
For over 5,000 years, gold has been the hardest asset, the most resistant to the easy money trap.
Hardness can be quantified by the supply growth rate, the new supply produced in a year divided by the existing stockpiles.
The lower the supply growth rate, the harder the asset.
Historically, gold has been mankind’s hardest asset with the lowest supply growth rate, which is why it has always been the best money.
The World Gold Council estimates there are 6.8 billion ounces of mined gold globally, and annual production averages around 117 million ounces.
That means gold’s supply growth rate is around 1.7% (117 million / 6.8 billion), which has been relatively consistent for many years.
In other words, no matter how hard humans try, they can’t increase the gold supply by more than 1-2% each year, a trivial amount.
In the chart below, we can see the supply growth rate of various physical commodities.
No other physical commodity comes close to gold’s low supply growth rate and resistance to debasem*nt.
Monetary commodities such as gold and silver have relatively low supply growth rates. On the other hand, industrial commodities have high supply growth rates.
A high supply growth rate means new production can easily influence the overall supply—and prices.
Annual production for industrial commodities can sometimes far exceed existing stockpiles, which means the supply growth rate is more than 100%. That’s because stockpiles for industrial commodities are low as industrial processes constantly use them up.
For example, according to the International Copper Study Group, annual copper production is around 21.9 million tonnes, and stockpiles are around 1.4 million tonnes. In other words, new annual copper production is more than 15 times the amount of existing stockpiles.
Copper stockpiles are so low relative to new production because industrial processes constantly consume them, which means new annual production is an enormous factor in copper prices.
Here’s the bottom line.
It’s not desirable for an asset to function as a store of value if its price is hostage to the whims of ever-changing industrial conditions.
That’s why it’s a big problem for an asset with a high supply growth rate to serve as a store of value, an essential function of money.
Three things can explain gold’s extremely low supply growth rate of 1.7%.
First, gold is indestructible; it doesn’t decay or corrode. That means that most of the gold people produced even thousands of years ago is still around today and contributes to the current stockpiles.
Second, gold has a history of thousands of years of production, unlike other metals like platinum and palladium, which humans have mined for only a couple hundred years.
Third, unlike copper and other metals, industrial processes don’t deplete a large portion of gold’s stockpiles.
These three factors make gold’s existing stockpiles so large relative to new production.
That means nobody can arbitrarily increase the overall gold supply, which helps make it a neutral store of value. It’s what gives gold unique and unmatched monetary properties among other metals.
Before I move on, it’s important to clarify that hardness is not the same as scarcity; They are related concepts but not the same thing.
For example, platinum and palladium are scarcer than gold but not hard assets. Annual production is high relative to existing stockpiles.
Unlike gold, stockpiles of platinum and palladium have not been built up for thousands of years, and industrial processes consume a large portion of them. It’s the primary reason why new supply can easily rock the market.
Because of their high supply growth rates, platinum (178%) and palladium (83%) are not suitable as money. Their high supply growth rates indicate they are primarily industrial metals, which corresponds to how people use them today. Almost nobody uses platinum and palladium as money.
Here’s the main point.
Hardness is the most important characteristic of a good money. All other monetary characteristics are meaningless if the money is easy for someone to produce.
That’s why the history of money is the hardest asset always winning and why gold has always reigned supreme.
But now gold has a serious competitor…
The Hardest Money the World Has Ever Known
Today, the daily Bitcoin production is around 900 new BTC per day or 328,500 BTC per year.
There are currently about 19.67 million BTC in existence right now.
That means Bitcoin’s supply growth rate today is about 1.7% (328,500 / 19.67 million), which is equal to gold’s.
According to its fixed protocol, we know precisely how Bitcoin’s supply will grow in the future.
A key feature is that the new supply gets cut in half every four years, which causes Bitcoin’s hardness to double every four years.
The process where Bitcoin’s new supply is cut in half every four years is known as the “halving.”
Historically, halvings and their massive supply shocks have catalyzed eye-popping Bitcoin bull markets, in which the price has skyrocketed 10x (or more).
The next time Bitcoin’s supply growth will be cut in half is on or around April 20. That’s when the new daily Bitcoin production will drop from 900 to 450 BTC.
But this coming halving will be very different…
That’s because Bitcoin’s hardness will be almost twice that of gold’s when that happens, as its supply growth rate will drop to around 0.9%.
That’s how Bitcoin will soon become the hardest money the world has ever known. And it will keep getting harder as its supply growth rate approaches zero.
For thousands of years, gold has always been mankind’s hardest money. That is all set to change in days, and most people have no idea.
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