The Most Inflation-Resistant Money the World Has Ever Known
Posted by M. C. on August 17, 2022
In other words, Bitcoin is the first—and only—monetary asset with a supply that is entirely unaffected by increased demand.
That is an astonishing and game-changing characteristic.
Hardness is the most important characteristic of a good money.
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 inflation,” which helps make it a good store of value—an essential function of money.
Would you want to put your savings into something that somebody else can create with no effort or cost?
Of course, you wouldn’t.
It would be like storing your life savings in Chuck E. Cheese arcade tokens or airline frequent flyer miles.
Unfortunately, putting your savings into government currencies isn’t that much different.
What is desirable in a good money is something that someone else cannot make easily.
The stock-to-flow (S2F) ratio measures an asset’s hardness.
S2F Ratio = Stock / Flow
The “stock” part refers to the amount of something available, like current stockpiles. It’s the supply already mined. It’s available right away.
The “flow” part refers to the new supply added from production and other sources each year.
A high S2F ratio means that annual supply growth is small relative to the existing supply, which indicates a hard asset resistant to inflation.
A low S2F ratio indicates the opposite. A low S2F ratio means that new annual supply can easily influence supplies—and prices. That’s not desirable for something to function as a store of value.
In the chart below, we can see the hardness of various physical commodities.
Monetary commodities such as gold and silver have higher S2F ratios. Industrial commodities have low S2F ratios, typically around 1x.
Be seeing you
MCViewPoint 
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