Bitcoin Halving: Past & Future Implications

Yesterday, the community celebrated one of the most valued crypto holidays – the Bitcoin halving. 

Bitcoin’s issuance rate has been cut in half for the third time in history, bringing the block reward from 12.5 BTC down to 6.25 BTC. While the previous halvings have been always a positive event for the crypto ecosystem, this one in specific is a historical moment.

As of yesterday, BTC is now one of the scarcest assets in the world. The Bitcoin network will now only mint 1.8% of the total supply every year – bringing this issuance rate below most fiat currencies. More importantly, the Bitcoin halving brings BTC in line with (or even lower than) gold’s annual issuance rate which is estimated to be around 1.3-2.5%

The cherry on top here is the current macroeconomic climate with central governments across the world injecting trillions of dollars in stimulus packages and bailouts to prevent the global economy from collapsing. There’s a strong narrative forming around the notion of a non-sovereign, scarce asset that fits in our increasingly digital world. 

BTC fits that bill perfectly. 

Recap since our last BTC halving article

If you’re one of our long time recurring readers, you may remember our original BTC Halving article on Medium from roughly a year ago. In the article, we outline in detail how BTC has performed following every halving.

Hint: it does well. 

We also forecasted that the price of BTC would perform positively in 2019 as we head into the halving in May 2020. At the time, the price of BTC was only at $5.5K. Just for the record, we stated” “we’re expecting Bitcoin will likely be trading at around half of the current peak price (approximately $10,000/BTC) heading into the halving”

Low and behold, BTC was trading at $10,000 on Friday, May 8th just a few days before the halving. We’ve taken a slight drawdown since then but what’s a few thousand among friends?

Here are some stats about the BTC halving from that article:

But what’s the core takeaway? Historically speaking, BTC has reached new all-time-highs within 18 months following the halving. While we only have two data points and past performance is not indicative of future success, the BTC halving has acted as a pivotal piece for the broader crypto market cycle.

Importantly, we’re seeing early signs of lengthening cycles. In other words, every time BTC enters a new market cycle, the cycle takes longer and is slightly less volatile than the previous. 

If we assume that’s true, we can say that this upcoming bull cycle will take more than 526 days (>18 months) with the total percentage increase from the price at the halving to its relative peak being less than 2,900% (<$250K). 

We’ll be sure to circle back to this in a few years to see how we’re doing. But we’re on the record.

The Bad News

While the BTC halving provides a foundational bull case for the non-sovereign, fixed supply asset, there’s also some bad news that comes with the halving.

When Bitcoin experiences a halving, it’s important to recognize that the incentive to run a BTC miner and secure the network is reduced by 50%, making it at least twice as expensive for miners to operate in profit.

In response, we should expect to see many miners capitulate in the coming months as the price of BTC remains below the breakeven point. This will result in a drop in hash rate (i.e. network security) over the next few months until BTC reaches a price point where it becomes profitable to mine again.

Operating expenses for miners range significantly but high-level estimates for the breakeven point in the post-halving era are around $12-15k with the low-end being approximately $10,000. 

Interestingly enough, we’ve seen evidence that miners may adapt, such as blocks now being mined twice as fast.

Long term

Looking at Bitcoin in the long-term, it’s certainly holding up its case as a Store of Value. Especially in a climate in which fiat currency is being printed at unprecedented levels, it will be extremely interesting to see if Bitcoin is able to break its correlation with equity markets and evolve into the truly non-correlated asset we’ve long called it.

For those constantly asking – what will the price of Bitcoin be on X date or when will Bitcoin break its all-time high? We have no idea.

What we do know is that previous halvings have boarded extremely well for the industry’s most valuable crypto asset and we’re quite bullish heading into the coming year.

Expect a slightly slower, steadier trend than last time and as always please do your own research!

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