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“Bitcoin Halving: Bullish or Bearish? Exploring the Post-Halving Market”
Summary:
Bitcoin’s recent surge above $69,000 and subsequent drop to $59,000 has sparked discussions about the upcoming halving and its potential impact on the market. This article aims to explore the possible reactions of the market after the Bitcoin halving.
Table of Contents:
1. Is the “Halving Cycle Theory” Reliable?
2. Halving vs. Meme
3. Bitcoin Halving: Bullish or Bearish?
4. Conclusion
On February 29th, Bitcoin quickly rose above $64,000, just shy of its all-time high of $69,000. However, due to exchange rate fluctuations, the price of Bitcoin in CNY has already exceeded ¥450,000, setting a new record. Nevertheless, amidst the excitement in the crypto market, traditional financial giant JPMorgan poured cold water on the situation by stating that Bitcoin could drop to $42,000 after the halving.
In recent times, the crypto market has witnessed significant events that have affected the price of Bitcoin, such as the continuous growth of the Bitcoin ecosystem and the approval of spot ETFs. The upcoming halving, scheduled in just over a month, is considered a significant event in the halving cycle theory, which has historically caused market turbulence.
Image source: oklink Halving Countdown
The halving cycle theory uses historical bull and bear market durations to support the accuracy of the four-year halving cycle. However, some individuals attempt to find flaws in this theory to discredit its reliability.
Bitcoin Halving Timeline:
– January 2009: Genesis block, initial block reward of 50 BTC
– November 2012: Halving at block height 210,000, reducing the block reward to 25 BTC
– July 2016: Halving at block height 420,000, reducing the block reward to 12.5 BTC
– May 2020: Halving at block height 630,000, reducing the block reward to 6.25 BTC
– May 2024 (expected): Halving at block height 840,000, reducing the block reward to 3.125 BTC
People tend to believe in viewpoints that benefit themselves when it comes to predictions. Despite extensive analysis and discussions, the crypto community often resorts to the phrase “TL;DR” (too long, didn’t read) and responds with remarks like “The analysis makes sense, but don’t analyze next time.”
The impact of the halving cycle theory on the market depends on whether it is perceived as positive or negative. Ultimately, it relies on individuals’ willingness to listen and believe in a particular viewpoint.
Although people may interpret news positively when expectations are established, leading to corresponding market reactions, it is important to note the “Ding Crab Effect” that exists in specific stock markets. Whenever a TV drama starring Zheng Shaoqiu airs, investors become anxious. The Ding Crab Effect represents a herd mentality, where most people choose to follow the mainstream opinion due to fear of going against it.
In comparison to the Ding Crab Effect, the “Halving Effect” of Bitcoin seems to have more logical and theoretical support. As a crucial rule designed by Satoshi Nakamoto for the Bitcoin system, the halving has repeatedly been verified, providing confidence and anticipation.
In the crypto market, where unusual events are common, even pure meme projects are being fervently pursued. Therefore, the halving, which has strong consensus, has become a routine event every four years. It has already become a meme itself, as confidence automatically returns when the halving is mentioned.
In reality, the crypto community and capital markets need such a catalyst to ignite FOMO sentiment. After each halving, there will be numerous analyses providing bullish logic and interpreting all events as positive, leading to self-hypnosis and self-suggestion.
Taking a step back, even if the halving theory is considered superstitious, when more people believe in it, it easily becomes a consensus, similar to the subconscious judgment of a “biological clock.” In the market, which is often irrational, people are more inclined to believe in “what goes up must come down” and other similar “laws.”
Looking at previous post-halving markets, the crypto bull market cannot solely be attributed to the halving itself. It primarily arises from different logics supporting previous bull markets, such as the explosion of the digital gold concept, blockchain smart contract applications, and the implementation of DeFi. The future is full of variables, and the halving of Bitcoin in previous years did not necessarily bring immediate benefits; in fact, prices often declined before and after the halving. The Bitcoin halving can be seen as an important catalyst for a major market, but it cannot be considered a direct factor that triggers a bull market.
Whether the post-halving period will bring about a significant market rally, as it has in the past, depends on a comprehensive consideration of several variables:
Variable 1: Reduced miner rewards and increased production costs
This was the reason behind JPMorgan’s analyst predicting a post-halving drop to $42,000. In simple terms, after the halving, the block reward for Bitcoin will be directly reduced from 6.25 BTC to 3.125 BTC. Without breakthrough advancements in mining chips, the production costs for miners will significantly rise. The analyst at JPMorgan believes that the increased production costs will negatively affect Bitcoin’s price.
In each halving cycle, there have been concerns about rising mining costs leading to miners withdrawing their hash power, potentially affecting the stability of the Bitcoin network and even causing a severe consequence known as “death spiral.” However, previous halving cycles have proven otherwise, as miners became even more active.
Although many, including the JPMorgan analyst, may overlook the transaction fee income generated by miners and the Bitcoin ecosystem, according to on-chain data, transaction fee income has been decreasing in the past three months. During the peak of the craze, transaction fee income could reach up to 40%, whereas it currently ranges from 5% to 8%. If the Bitcoin ecosystem cannot sustain its momentum and the price of Bitcoin does not continue to rise, the reduction in miner income is indeed a matter worth considering.
Image source: oklink
Variable 2: Rise of the Bitcoin ecosystem
The bottom-up development of the Bitcoin ecosystem has caught many by surprise. However, it has provided a new set of wings for digital gold Bitcoin, prompting people to dig deep into its underlying value. Perhaps beneath the surface lies a larger gold mine. A graph released by Stacks, a top-tier project at the Bitcoin smart contract layer, vividly illustrates this expectation.
Variable 3: Global economic recession and no rate cuts by the US dollar
The approval of spot ETFs is merely an entry point, and it requires funds to flow in to be effective. Therefore, the real bullish factor lies in the “liquidity injection” of the US dollar this year, which will demonstrate the value of the ETF super entry. If the expectations for Bitcoin weaken, the funds flowing into spot ETFs may also withdraw. In the event of a stock market crash or a bottomless pit scenario, will funds withdraw from Bitcoin spot ETFs first?
Variable 4: Bitcoin replacing gold as a hedging asset?
In terms of Bitcoin’s other function as a hedging asset, the current Bitcoin is no longer the same. With the promotion of spot ETFs, Bitcoin’s transition to a global mainstream asset will gradually reduce its volatility, highlighting its hedging properties as “digital gold.” During economic recessions and stock market declines, people usually choose to hedge risks with assets like “gold” and its derivatives. Now, there is another option. Will funds divert towards Bitcoin ETFs?
Recent analysis has indicated that the significant inflow of funds into Bitcoin spot ETFs has seemingly come at the cost of outflows from gold ETFs. In the first week of February, investors redeemed $858 million from gold ETFs, and as of last week, gold outflows amounted to $3.2 billion.
Variable 5: The failure of laws, diminishing momentum, and influence of Bitcoin halving
There is a certain logic: when everyone anticipates something, the market often moves in the opposite direction, and most people end up being harvested by capital.
There used to be a law in the stock market called the “May Effect,” a stock market legend in Hong Kong from the 1980s to the 1990s. It stated that the stock market would start to decline in May, experience a significant drop in June, and then miraculously revive in July.
As this “prophecy” or “law” proved accurate every time, people began finding ways to prevent or counteract this phenomenon. These actions resulted in the cycle appearing earlier each time and eventually losing its reference value.
The reduction in the halving reward for each Bitcoin cycle is accompanied by a significant decrease in the reduction amount. In other words, the steps and intensity of the halving are becoming smaller. This mechanism helps stabilize the network and price in the long run, but future halvings may no longer have the same momentum and substantial influence as before. It may simply become a “commemoration day,” and the focus will shift to the “Bitcoin ecosystem.”
The changing trend in the steps and intensity of the halving reward reduction
Although some variables may appear less optimistic, and others may present a mixed outlook, it is hopeful that the final outcome will lean towards the positive side. When a trend forms, everything will follow suit.
Perhaps the Bitcoin halving has never been the direct cause of a bull market but rather the missing “east wind” when all conditions are ripe. The market is not a place for judging right and wrong or being rational. The importance of the halving cycle theory as a “search for a sword” is diminishing, as there is a strong demand and logic behind it.
In 2024, despite the mixed variables, capital can play various narrative combinations, including halving + ETF inflows + the Bitcoin ecosystem + US dollar rate cuts, among other overlapping logics. The price growth will solve all problems. In this context, the halving theory may once again “fit in.”
Related Reports
– Countdown to Halving: Cryptocurrency Market Cap Surpasses $2.4 Trillion, Spot ETF Adds 52,000 BTC This Week
– Financial Times: Why Bitcoin Could Still Experience a Sharp Decline
– Arthur Hayes Predicts a 20-30% Retracement for Bitcoin in March: Be Cautious of These 3 Economic Landmines