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Is Bitcoin's Price Affected by Population Growth?

01 Dec 2019 - Cryptocurrencies

Bitcoin Holders Benefit from Slowing Population Growth

Across large parts of the world, fewer children is becoming the norm.  This is showing in slower population figures.

Why, exactly, would people be choosing to have fewer children and what does it have to do with Bitcoin?   

On the former question, the answer is complex.  One simple explanation is that children have gone from being an infinitely valuable asset and one with productive value as well to an asset that comes with large liability.  Children used to help out on the farm.  They used to perform activities that brought tangible value to their parents.  With more families opting for urban living, that tangible, productive part of a child’s life has shifted somewhat.  In addition, in some circles children have become a liability if divorce is ever on the table.  Let us inspect recent population growth trends.

Population Growth in Europe, China, and the United States

The following figure shows population growth on a year-over-year basis for China, the United States, and China.  Perhaps unsurprisingly, population growth is slowing in all three.  For the Euro area, population has dropped below 0.2%.  In 2011, population growth went negative.  In China, population growth was 0.7% in 2001.  The 2018 growth rate is about half what it was in 2001 at 0.4%.  In the U.S., in 2001 the population was growing a little faster than 1.0%, the heartthrob of population growth in the western world.  The story has changed.  In 2018, population grew by about 0.6%.  Still higher than population growth in Europe or China, but nowhere near the early century growth rates.  Perhaps most surprising, if current trends continue to hold, population growth will soon turn to population declines in all three areas.

Bitcoin’s Price Rises Over the Population Slowing Period

With a global population growth picture that is declining, one might wonder whether this picture presents winners and losers in the investment world.  The answer is, of course, yes.  One of the apparent winners is Bitcoin.  The following figure shows the price of Bitcoin from 2009 (when it was conceived) to 2019.

Does anything stand out?

Over the period in which Bitcoin has been in existence, Bitcoin has gone from nothing to $7,602 as of writing.  Bitcoin has had an amazing run over the period in which population growth has been slowing.

Why would Bitcoin rise when population growth is slowing?  Unsurprisingly, there are many answers to this question.  Two factors seem most prescient.

First, when population growth slows, this implies a shift in consumption patterns. Instead of consumers spending money on household and family items, they spend money on travel, luxury good, and invest more.  Bitcoin is one of the investment options within the allocation options.

Second, a slowing global population growth picture signals severe issues with government spending, especially in cases when a government has a large social safety net and regulatory apparatuses.  How will governments finance such expenditures with a smaller population and workforce?  Some suggest they will not be able to do it.  They will either have to turn to much higher taxes or print money to buy their own debt.  Both of these solutions are not very likeable to investors or the public at large.  One option to hedge against these types of government solutions is Bitcoin.  Bitcoin is hard to tax and it provides a natural hedge against imprudent government spending policies.

Conclusion

With world population growth slowing, investors are searching for assets to diversify against what might happen when population growth becomes so minimal as to become a real problem.  One such option is an investment in Bitcoin.  Bitcoin offers diversification and some hedge against what governments might do when their population growth is not enough to support their massive spending pressures.

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