No investor or financial advisor has a crystal ball that can predict the movement of an asset, including bitcoin, with total certainty. But past bitcoin halvings can provide clues on what we could potentially expect, as Andy Edstrom writes.
Also in today’s newsletter, Alyssa Hertig provides a primer on what the bitcoin halving is, for those who are not familiar.
By the way, the CoinDesk Consensus event continues to unfold today and tomorrow. There’s still time to grab a 2-day pass or virtual pass through this link here.
The bitcoin (BTC) bear market of 2022-2023 was a doozy. Having also held bitcoin through the bitcoin bear market of 2018-2019, I can attest that this one was just as painful despite being slightly shorter and having a less dramatic maximum drawdown.
Perhaps my increased financial exposure this time was the reason for this difficulty. Or maybe it was my shattered hopes for better-informed mainstream media coverage, as I found myself addressing the same old worries as before (prohibition, quantum computing, environmental effects).
Regardless, I’m glad to see the tail end of this bear. Although nothing is certain, barring any significant negative surprises, like the COVID-19-induced bitcoin liquidation of March 13, 2020, the bitcoin bear market of 2022-2023 is likely over.
Here’s why:
The halving is nigh: The Bitcoin halving, which reduces the issuance rate of new bitcoins, happens roughly every four years. The prior two halvings both catalyzed major bitcoin bull markets. It’s not hard to see why. Holding demand constant, a downward supply shock forces an upward recalibration in price. Supply and demand always rule, and when supply is cut the price rises. The next halving is less than a year away.
No more tourists: Once the halving-induced bull starts running, it always draws the momentum crowd. These traders see the bitcoin price rising and they pile on. This causes a bubble that eventually ends, and they get washed out in the months following the peak. Today we have passed the washout point, as evidenced by the average age of bitcoin unspent transaction outputs (UTXO). The tourists are gone, and the HODLers remain.
More bad news can’t cause new lows: Last year had plenty of bad news in cryptoland, and that carried over into bitcoin’s price. Terra, Three Arrows Capital, Celsius Network, BlockFi, Voyager Digital, FTX and others all fell apart. But this year the bankruptcy of Genesis and worries about DCG, Grayscale and Binance didn’t take bitcoin down to new lows. The last of the sellers were already washed out.
In May 2020, the number of bitcoin (BTC) entering circulation every 10 minutes – known as block rewards – dropped by half, from 12.5 to 6.25. It’s a milestone that was easy to see coming because it happens every 210,000 blocks (approximately every four years) and had happened twice before 2020.
New bitcoins enter circulation as block rewards, produced by the efforts of “miners” who use expensive electronic equipment to earn, or “mine,” them.
Roughly every four years, the total number of bitcoin that miners can potentially win is halved.
In 2009, the system rewarded successful miners with 50 bitcoin every 10 minutes. Three halvings later, 6.25 bitcoins are being dispensed every 10 minutes.
The process will end once the number of bitcoin in circulation reaches 21 million. A popular estimate is that it will occur sometime near the year 2140.
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A report from the firm noted that the crypto winter is finally over and bitcoin halving is set to be a positive catalyst for the price.
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Disclaimer: The information contained in this newsletter, and any information linked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. You should seek additional information regarding the merits and risks of investing in any cryptocurrency or digital assets.
