Daily Trade Ideas & Trends
7 May 2020
Doc's Daily Commentary
4/29 ReadySetLive with Doc and Mav
Mind Of Mav
The Halving After The Halving
We are less than 4 days away from the Halving – can you feeeeel it?
Well, the market certainly has.
We’re half a week away and BTC is on track to surpass its yearly high of $10,500 set on February 12th.
We were so young and innocent back then.
On the flipside, we have seen BTC recover spectacularly from its massive selloff in mid-March (when many wrote it off despite everything being on fire) to becoming the best performing asset out there . . . once again.
It’s almost like anyone who declares finality based on price volatility is a clickbait moron. Shocking!
But, while all eyes are on the big green candlesticks, let’s consider something that will quickly be relevant.
In the next few days, somewhere around May 12th, the question of what will happen after Bitcoin’s third halving will finally be answered.
Of course, we’ve seen debate rage openly regarding this topic within the crypto community and even beyond, in wider financial circles. Will the 50% drop in annual Bitcoin inflation help drive the price and adoption of the orange coin, reduce it, or have no impact all? Will we see BTC break 20k again? Or will we forever live in the shadow of 2017’s high? There are compelling arguments for each scenario, and, as the moment approaches, the voices from each camp are reaching a crescendo.
The reason it’s so difficult to accurately predict what will happen next is that there are only two precedents in Bitcoin’s entire eleven-year history — hardly enough data points to be able to create a likely outcome that has any real credibility — and Bitcoin’s awareness, use, and adoption levels are far higher than then they were in 2016. How does that fact alone change things?
The ‘downside’ crowd will argue that Bitcoin’s halving could actually have an adverse effect. After all, once the protocol kicks in and miners find themselves with half the reward for the doing the same work with the same costs, much of their equipment will simply not be profitable to run. They will need to finance an upgrade, possibly by selling their Bitcoin stocks to do so.
As we went into extreme detail yesterday, older generation machines, especially Bitmain’s ubiquitous S9, will almost certainly be switched off for good — effectively guaranteeing a significant and immediate decrease in hashrate post-Halving. However, this will lessen the impact for the more efficient machines that remain, so the net result will be what we’ve already seen 100 times before: the never-ending cycle of hashrate and difficulty adjustment rolls on, exactly as it was programmed to.
It’s also true that miners hoard when prices are high, releasing only what they have to pay the bills and keeping the rest for future expected price increases, but it’s also true that miners sell everything when prices are high to maximize returns when the going is good. The same happens when prices are low.
That’s the trouble with generalizations; it’s very hard to find ones that always apply.
I think the more relevant bearish position is to simply ask, more directly this time, what comes after the halving as far as expectations are concerned?
Let’s not ignore that this has been the most-hyped event in Bitcoin’s history, and has essentially been the cornerstone of the most bullish predictions and hyperbole for the last two years at least.
When Bakkt, the Bitcoin ETF, IEOs, Altcoin rallies, China’s announcements, and so many other “catalyst” events that were supposed to be BTC $20k+ springboards failed to do much other than create temporary noise, there was always the Halving as the fallback Bull case.
And it was always a fallacy.
The 4-year cycle of Halving events has more certainty to it than the Olympics (too soon?). It is the event to be priced-in. More than that, it is completely endogenous, i.e., a Bitcoin event that only Bitcoin people will care or know about. I guarantee you that 99% of people don’t know, and frankly don’t care, about the big day.
And why should they?
It’s not something that common people will care to learn about, nor will they have much of an understanding of its importance even if it was explained to them. Honestly, let’s ask ourselves why we see this as something significant worth getting worked up over? Why talk incessantly about something that has a 99.99999% degree of certainty as if it’s a sporting event?
Do you feel the same way about the surely astonishing 2024 Halving? Or the critically-acclaimed 2028 Halving? How about the thrilling 2032 Halving?!
Hopefully, you see how this becomes a silly thing to be emotional about once we strip away the noise of the now.
In that sense, let’s stop pretending the Halving, and the massive hype for it, is anything other than a thinly-viewed hope to see price move up. That only happens when more capital is flowing into the crypto market than out of it, and that flow is only sustained by the crypto market serving a more appealing alternative to the fiat markets.
So, yes, we have very little to look forward to after the Halving because price (and the hope for explosive growth) was really the only reason this event has hype, and price isn’t much of a sustaining reason for anything — speculative capital leaves just as fast as it arrives.
But, here’s where I start to take the Bullish side. After all, the glass-half-empty view of the post-halving crypto space having nothing to really look forward to or be hyped about is the healthiest thing possible for Bitcoin right now.
Instead of seeing a lack of “price-catalyst” possibilities, we can instead focus on the two true drivers of Bitcoin’s potential growth over the next decade: how the fiat markets are evolving, and how technology is evolving with it to create a New Digital Economy.
As I’ve said for a long time, a more digital and internet-based international audience is the environment that Bitcoin and blockchain thrive best in. Couple that with the massive explosion of race-to-the-bottom debt-based economics that is expeditiously inflating fiat currencies into grotesque abominations incapable of coexisting with the digital economy and its need for digital, deflationary value.
Not only does this make Bitcoin even more appealing to those looking for an easily accessible store-of-value vehicle from a deflationary point of view, but it also has a direct effect on the supply and demand equation that, on paper, makes perfect sense.
Put simply, for the price to stay the same, the demand would have to drop to match supply and, since this is unlikely, the conclusion must be that price is likely to increase even if the demand only remains constant. Economic theory tells us that people will have to pay more if they wish to acquire the same amount of Bitcoin.
It’s a strong argument that also carries a precedent similar to the hashrate example. In both Bitcoin’s previous halvings, the event has historically signaled the start of a bull market, although in both cases it took approximately twelve to eighteen months to reach fresh all-time highs, with little movement immediately after the event.
Could it really be as simple as seeing a repeat of the same process?
In more ‘normal’ times there would perhaps be a compelling case to state this as the most likely outcome on the balance of probabilities and leave it at that.
But these are not normal times.
The Halving is about to take place in one of the most uncertain and unstable financial landscapes in human history, and although the word ‘unprecedented’ has been overused of late, it nevertheless remains the most appropriate one to turn to once again.
Analysts, myself included, have struggled to make sense of new data, trying to extrapolate likely outcomes and decipher newly formed macro-economic behavior using variables that are changing in real-time even as we examine them. The conclusion must be that the only certainty right now is uncertainty itself.
And if that is the case, does Bitcoin’s relative certainty of supply, network stability, deflationary value, and ease of access to everyone give it a uniquely appealing position in the global financial markets?
I, for one, believe so.
Bring on the next four years.
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