Monetary Base
The monetary base of a currency is a measure of how much of the currency is in circulation.
The monetary base of a currency is a measure of how much of the currency is in circulation. A country can increase its monetary base by releasing additional money to the public. This is often done with newly minted currency.
The government may introduce currency by buying assets from the market or spending money on projects. A country can decrease its monetary base by selling assets to the market. Increases in the monetary base lower the value of the currency by causing inflation.
Decreases in the monetary base raise the value of the currency, causing deflation. The monetary base is only one way of measuring the money supply. The monetary base can also be called M0.
It is the most stringent measure, and only includes the actual amount of money in circulation. M1 is M0 plus “cash equivalents” which can be easily converted into cash. This generally references people’s deposits in bank accounts.
M2 is M1 plus “near-cash” assets that can be converted into cash relatively quickly, such as savings accounts or short term investments. Bitcoin’s monetary base is regulated by the network itself. Unlike fiat currencies, Bitcoin’s monetary base is governed by immutable algorithm, and is capped at 21 million bitcoin.
Monetary Base is a macroeconomic concept that influences monetary policy, asset valuations, and investment decisions worldwide. Onramp's glossary explains Monetary Base in the context of Bitcoin's role as a potential hedge against traditional economic risks and monetary policy changes.
Frequently Asked Questions
What is Monetary Base?
Monetary Base is a macroeconomic principle that describes conditions or measurements within the broader economy. It influences central bank decisions, government policy, and investor behavior across all asset classes.
How does Monetary Base relate to Bitcoin?
Bitcoin's fixed supply of 21 million coins positions it as a potential counterbalance to economic forces described by Monetary Base. Many investors turn to Bitcoin as a hedge when macroeconomic conditions shift.
How does Onramp help investors navigate Monetary Base?
Onramp provides Bitcoin financial services including custody, IRA accounts, and educational resources that help investors understand how macroeconomic factors like Monetary Base may affect their portfolio strategy.
