Efficient Frontier
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Efficient Frontier

Are you halving fun yet?

Peeking in the Bitcoin time machine and deciding the halving is a pre-game for the next massive bull run

When the 630,000th block of Bitcoins is “mined”, Bitcoin’s production will drop to 6.25 Bitcoin’s in each new block from 12.5, lowering the yearly Bitcoin inflation to 1.8%.

No one knows the exact effects of the halving beside the raw fact of Bitcoin mining becoming more expensive, but there’s just enough information to offers some juicy speculation.

Did you say something about a bull run?

Right now Bitcoin’s price is following the pattern it did towards the last halving (i.e. “buy the rumor sell the news”), Bitcoin’s price went up sharply and lost heat before the main event. In our view, the real effect of the production halving will be felt over the longer term. A great illustration of this can be seen in the following chart from Soona Amhaz’s excellent overview about the halving’s effect on price:

Source: Why bitcoin’s price usually falls during the halving by Soona Amhaz

Coincidentally or not, the Bitcoin’s price rose substantially for over a year following the last 2 Bitcoin halvings. This pattern also correlates very well with the reoccurring bitcoin bubble stats we shared in our article last month, which show each halving as a pre-game to a huge bull run. With unprecedented increases in supply and unorthodox monetary policies in the world’s reserve currency and the rise of the millennial generation, the odds look increasingly good for another cycle of this sort.

If you want to read more about the effect on Bitcoin mining Jason Deane wrote a good overview as well.

Bitcoin time-machine

Each Bitcoin halving is approximately 4 years apart, which is a very long time for the cryptocurrency world. The last halving was in the summer of 2016, while the first ever halving took place in the winter of 2012. Things change fast in this industry and from one halving to the next. There was massive shift in the leading companies, the users, the discussions and of course the coins and their prices and the exchanges they’re traded in.

coinmarketcap.com one day before the 2end Bitcoin Halving. How many coins do you recognize?

Seeing how far we’ve come in the last 4 year reminds me how different things may be once again in 2024.

coindesk.com on the morning of July 9th 2016

Breaking records

The Bitcoin derivatives space has developed and matured significantly over the last 4 years, although it still has significant room to grow. Deribit was founded one month before the last Bitcon halving, OKEx came about in 2017, Bybit in 2018, and FTX and Kraken Futures in 2019.

Probably the newest sphere for bitcoin trader are options, which are currently breaking their all time records for Open Interest, lead by Deribit:

Source: Skew.com

The Bitcoin futures in the Chicago Mercantile Exchange, which were launched at the end of October 2017, are also breaking records for total open interest.

Source: Skew.com

And the cherry on top:

Source: Blockchain.com

Bitcoin’s hash-rate is very close to breaking its all time highs, reflecting the amount of electricity and hardware aimed at mining Bitcoins and protecting the network. It’s not clear what happens to hash rate in the short run after halving, when less efficient miners are forced to capitulate because of the lower block rewards. It could be that the hash rate drops off before climbing back up again as miners switch out their less efficient mining rigs for the latest models.

All that being said, the Halving is a positive festivity, marking a time of change and signaling the ever possible future growth of this industry. Happy halving from the entire Efficient Frontier team!

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