Why bitcoin’s price usually falls during the halving

Soona Amhaz
May 5, 2020 · 4 min read

If you’re reading this you probably know what the bitcoin halving is. Or, at least, that something called the halving will occur in 8 days (to access the most important timer across the economy, go here). As part of bitcoin’s issuance, bitcoin miners are rewarded a number of bitcoins per block produced, and in 8 days, that number will drop from 12.5 to 6.25 coins per block. This means roughly $8m in bitcoin daily, gone. Over time, that sum adds up quickly.

What does this mean for bitcoin’s price?

Within the crypto space, there’s a sort of taboo around discussing price. People often pick less controversial motives for why they’re here — excitement around a new technology or humanitarian use cases — and feign disinterest when the topic of price is brought up. This unwillingness to discuss the importance of price is, however, misguided. I think Marc put it best in his post Why Bitcoin Matters:

Though we believe trying to time or beat the market is a low-yield activity, we do think it’s important to have an understanding of fundamentals and empirical behaviors around price.

Contrary to popular belief, bitcoin’s price typically does not appreciate immediately upon the halving.

Since the halving is due next week, we thought it would be timely to re-share our halving analysis from last year.

What past halvings tell us

To begin, bitcoin getting crushed at halving has so far been the rule, not the exception. Analyzing price changes around the past two halvings on Nov 28th, 2012 and July, 9th 2016 offer a better picture of what we might expect to see next week. The usual argument against referencing the past two halvings is that trends can’t be extrapolated from two data points. What this argument fails to account for is these are two data points over a 12 year period, and in those 12 years no evidence to the contrary has emerged.

The following tables on the 30-day price average for bitcoin display a number of points in the one year preceding the halving and the one year after the halving. It can be easily observed that the positive price action in the 1, 3, and 6 months before and after the halving is moderate compared to the price action of 12 months. This means that the halving effect on price takes a long time period to materialize.

Additionally, the price changes related to the second halving are smaller compared to the first halving for the same time period. The cause is probably related to the smaller delta of the inflation rate between the first and second halvings. The first halving changed the median inflation rate from ~60% to ~10%, while the second halving changed it from ~10% to around ~4%. For the same level of demand, a smaller inflation shock would require a longer time frame for the price to respond to the change.

Data from TradingView using Bitstamp BTC/USD trading pair
Data from TradingView using Bitstamp BTC/USD trading pair

If the price action around the third halving next year followed the same trajectory (median inflation changes form ~4% to ~1%), we may not observe dramatic price changes until the middle of 2021.

Wait but why?

Though there are several forces acting on bitcoin’s price, we believe this anonymous post best sums up some of the largest ones around the halving.

As we inch closer to the halving, whatever immediate price action may be, remember that paradigm shifts take decades to happen, and that decades are not measured in days.

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