It is finally around the corner. The Bitcoin halving is due to happen on 12 May at around 9:36am UTC. I don’t know about you, but this will be my first halving and I’m pretty excited.

That said, I am positive it will be somewhat of a none event. The block will get mined, and a whole lot of people will send a bunch of high fee transactions to try and get one in the 630,000th block and the mempool and fee rate will spike.

And then, the protocol will work its way through block 630,001 and 630,002 and nothing else will really happen. Aside from the human excitement value and our expression of demand via price, that will be all there is to it, a change observable only on block explorers….
…for at most 7 days…

After that, the difficulty adjustment will kick in, exactly 1008 blocks after the halving block. And that is when we will get our first insight into just how many miners are over-leveraged and what kind of difficulty reduction we get. This piece of information is what the market will be looking at to determine whether sell pressure is inbound.

THE BLOCK REWARD

Block 630,000 will be the first block of the new epoch 4 of the Bitcoin issuance schedule where the block subsidy is reduced from 12.5 to 6.25BTC per block. That means that the miners are now competing over s globally smaller reward pool and holders like us benefit from the reduced coin issuance and sell pressure that creates.

However, whilst the issuance of coins will reduce and this is good (in theory) for scarcity, it means miner income just got slashed in half.
For the 7 day period after the halving, protocol mining difficulty will remain at the same level it was before the halving. This is a result of Satoshi’s design where difficulty adjusts every 2016 blocks (14 days) meaning that halving events are always in the middle of a difficulty adjustment cycle.

As a result, miners are competing for a reduced block reward pool at an elevated difficulty, making it even more challenging and less profitable.

What is quite interesting about this halving, is that we actual had an entrée served back in March.

Remember that miner costs are denominated in USD and their income is in BTC. All that matters for their profitability is their relative share of the global hash-power and the USD value of the block reward.

The 12.5 BTC block reward nearly halved in PRICE terms after falling 42% from $8.8k to stabilise around $5.1k, making for a reduction of 32% of the hash-power. The chart below shows that the impact of the entrée halving was almost immediate with the difficulty reductions being some of the most significant in Bitcoin history.

PRICE RESPONSE

So the question that remains is what is price likely to do both over the next week and immediately following on from the halving.
To answer these questions, it makes sense to look back at both Bitcoin and altcoin halvings to see the reaction. @CeterusParibus has been following this thread on Twitter quite often and produced this chart a last week for altcoins.

We can see a very distinct run-up in price for LTC in blue (twice) and BCH/BSV between 50 and 100 days prior to the halving event. Following the halving…we can expect some sustained candle action.

…but Bitcoin is Bitcoin and doesn’t trade like altcoins. What we have seen in the past for the top dog is quite the opposite of what we have seen for altcoins. Looking at the left side of the next chart (in green box) we can see that the last two halvings lead to around 90 to 150days of sideways but volatile price action before a true bull market commenced. The following bull rewarded holders generously with price growth of 30x (2017) to 100x (2013) measured from the halving event.

On the right of the chart we can see price as it approaches the next halving. We have three cycles which have all seen a run-up prior to the halving start between 180 and 50 days before the event before choppy sideways price action into the event.

If we stitch the observations together, probability suggests that price action into the halving is most likely to be choppy and sideways for a few months after the event.

The Fair value models of the S2F model, Difficulty Model and Mayer Multiple are all suggesting a price between $7,800 and $9,300.
200DMA = $7990
S2F = $8700
Difficulty = $9350

This also supports the notion that sideways and volatile can be expected with a longer term upside around 3 to 6 months after the halving.

CONCLUDING THOUGHTS

We all know nobody can predict the future and we do only have a handful of halvings on which to base our estimations. But at the end of the day, I would hazard a guess we all believe the halving is long term bullish. Quantitative Hardening in an era of infinite Quantitative easing.
In my personal opinion, we have 3-6 months of accumulation range and some choppy price action ahead of us. After that, all best are off on where this thing is going, but I suspect it is up.