Bitcoin and Halvenings | Does Bitcoin Skyrocket After A Halving?

“Back to work I go…” said Elon Musk on Twitter, single-handedly bringing about one of the largest increases in BTC prices to date. Tesla recently purchased $1.5B BTC and announced plans to accept it as a payment method for their vehicles. In a filing with the SEC, Tesla noted their BTC purchase will bring improved flexibility and diversification to their returns on cash.

In fact, their purchases in Bitcoin generated a massive profit of $930M, surpassing the total amount of car sales in 2020.

According to Musk, “Having some Bitcoin, which is simply a less dumb form of liquidity than cash, is adventurous enough for an S&P500 company.” Elon is a controversial figure and his actions are not always received in kind, but what cannot be debated, is his vision for the future.

Tesla’s investment is likely to set a precedent for large firms, yet to test the waters of the crypto space, and inspire further retail traders to get in while they still can. Elon has made it clear that sentiment can move the needle, with his tweets driving BTC prices up and his Dogecoin endorsement as stand-out examples.

Dogecoin, a tongue-in-cheek response to Bitcoin, has captured widespread attention this year. Developed in 2013, Dogecoin saw a major upgrade in 2019, with another major release tackling scalability and security concerns expected this year.

In response to nearly 600% growth in DOGE this last month, ProBit Exchange hosted a highly popular DOGE staking event offering up to 15% per annum rewards. If you missed out, you can still buy the dip with KRW, USDT, and BTC markets for trading.

New and old adopters may begin to reflect on these and many other sentiment-driven fluctuations and look for future moments of price volatility they can capitalize on. “Halvenings,” are a good place to start.

Halvenings? That’s Not A Word.

Correct, at least when used outside of the crypto sphere. Halvening has quickly become a token phrase within the crypto vernacular, referring to some of the most anticipated moments in the crypto community. Every 210,000 blocks, equating to approximately every four years, the rewards granted to BTC miners for processing transactions is halved with the next halving expected to occur in 2024.

Downstream effects of reduced remuneration are a decrease in supply and a less profitable mining process. Can you see where this is going? Supply and demand. In theory, this should cause prices to increase should demand remain static, but is this actually the case? BTC does not operate in a vacuum and it’s important to consider seemingly extraneous variables when interpreting historical price swings and trying to predict the unpredictable — the future price of BTC.

Unpredictable? History Says Otherwise

After a quick google search, you will likely be able to find numerous sources presenting an attractive graph showing BTC prices moving up and to the right, rather methodically, following a halvening. A common thesis is that within 1.5 years the effects of a halvening come into full swing, with a clear predictable growth pattern.

Historically, this is the case, with massive surges in BTC value shortly following Bitcoin halvenings. After the first halving in 2012, BTC moved from $12 to $1,150 within one year, the second halving in 2016 drove BTC from $600 to $20,000 by the following year, and the third halving in 2020 had BTC at $9,000 and now flirting with nearly $50,000. Easy enough right? It certainly is a promising theory.

Rewards are halved → 50% of inflation persists → supply reduced → demand is static → price increases → miners still make a profit.

If in 2024 the halving event does not result in price and demand increases, miners would lose their incentive and BTC would decrease in value. In the event that this occurs, Bitcoin has a built-in protocol that would come into effect to tackle this issue. Mining difficulty would be reduced to incentivize miners who have otherwise thrown in the towel due to operating expenses. Bitcoin emission would be lower but the difficulty would also be reduced.

This process has been successful thus far producing dramatic increases in price, followed by a predictable crash and price stabilization above previous highs. Although it seems clear cut, halvenings are surrounded by huge speculation and volatility, and BTC does not operate in a vacuum.

Societal Impact Cannot Be Ignored

Comparisons with previous halving cycles should be taken with a grain of salt. There are robust arguments against the previously discussed Bitcoin halvening theory which can be easily unpacked.

Traders know about the trading schedule

Unlike how a central bank operates, the halvening cycle is predetermined. Nothing is left to surprise. We know a halvening will occur in 2024, 2028, 2048, and even 2140. This predictability gives traders ample time to prepare and purchase BTC in anticipation, ultimately driving the price up.

If you believe BTC markets are free and efficient, this information should be priced in, thus making price volatility during and following a halvening due to “pump and dump” activity and not attributed to a well-developed protocol. When you hear someone say “the halvening is priced in,” this is what they are referring to.

Changing macro-environments

Macro conditions are constantly in flux. In 2017, one could argue BTC growth was attributed to the ICO boom, a general case of cryptomania, and a massive expansion of cryptocurrencies, not due to the halvening. Similarly, in 2020 and into 2021, we saw huge BTC growth but we also witnessed a global epidemic, helicopter money from the US government, interest rates at 0%, and investment from Tesla and other institutions. Bitcoin isn’t a bubble where it isn’t affected by these fluctuating macro variables and similarly, your thought process should transcend echo chambers, no matter how tantalizing that “truth” may be.

Additionally, the crypto markets maturity cannot be ignored. Derivatives, futures, and options are saturating the space and gaining significance, enabling enhanced price discovery from traders. The ability to borrow and sell short are trading functions that have recently balanced the playing field. Some theorize that the introduction of CMO and CBOE BTC futures played a prominent role in the 2017 sell-off. Institutions were able to bet against BTC, influencing BTC spot prices to a large degree.

Predicting the price of BTC is a notoriously difficult task. Prices could rise following the next halvening, but they could also fall. No one knows. What we do know, however, is BTC has been gaining traction among institutions and retail traders in recent months, propelled by recent events that have left confidence in the traditional financial system atrophied. New investors are flooding the crypto space — driven by a world that seems all but certain.

The excitement surrounding the long-term actionable implications of apps developed based on the Bitcoin protocol, futures trading tool developments, cross-border payment solutions, potential blockchain savings and efficiency, and institutional interest, are a few among many reasons to get in today at ProBit Exchange.