The halving of Bitcoin block rewards will occur around April 27, 2024. From a historical perspective, halving has triggered three surprisingly similar cycles
The halving of Bitcoin block rewards will occur around April 27, 2024. From a historical perspective, halving has triggered three surprisingly similar cycles. In this article, we will analyze the last three Bitcoin cycles and predict the next cycle.
The topics we explore include:
Bitcoin block rewards are halved for every 210000 blocks. On a time scale, halving occurs approximately every four years. This marks a change in Bitcoin monetary policy, reducing the block rewards (online inflation) paid to miners by 50%.
In April next year, the Bitcoin block reward will be reduced from 6.25 BTC per block to 3.125 BTC.
With the halving of new stock issuance, we have reason to conclude that a decrease in new stock supply is the catalyst for every bull market.
The theory goes like this:
After halving, the amount of Bitcoin miners sell to the market has decreased. This eliminates a significant portion of the selling pressure. The price is at the border, and new buyers will push up the price. Then the financial media began to talk about Bitcoin, and people began to search it on Google. Bitcoin Viral phenomenon, new buyers entered the market, and the activities on the chain increased. Venture capital companies invested funds to support the new business of the ecosystem. So, more business=more marketing=more users, which in turn stimulates more buyers, more chain activities, and more media coverage.
Look, this is a new high in history.
This is a great story, let's see if the data is true.
Net position change=The net change in Bitcoin held by Glassnode wallet addresses marked as belonging to miners.
The first halving: According to the Bitcoin monetary policy, the annual increase in issuance is reduced by 1.314 million. However, in the 12 months after the halving, the number of Bitcoins held by miners decreased by 4458603, which is more than twice the number of Bitcoins held by miners in the 12 months before the halving. In 2013, with the rise in Bitcoin prices, miners sold Bitcoin in large quantities. In the first half cycle, the miners lost a total of over 8 million Bitcoins. Due to the low price of Bitcoin, buyers dominate the market.
The second halving: The Bitcoin held by miners also fell more sharply in the 12 months after the halving compared to the previous 12 months. The price trend is once again dominated by market buyers. In the second cycle, the miners transferred a total of over 5.4 million Bitcoins.
The third halving: After halving Bitcoin, the number of Bitcoins sold by miners exceeded the previous 12 months. However, the third cycle is the first accumulation cycle for miners. In the past 6 weeks (starting from cycle 4), we have seen an increase of 93000 in net position.
The supply shock caused by reduced selling by miners does not necessarily trigger a bull market. In fact, in the 12 months after the halving of Bitcoin, miners sold more Bitcoin than at any time in the cycle.
Having said that, the idea of halving may attract new buyers, and the market can self regulate. Therefore, even if the data contradicts the narrative, if people believe it to be true, it may still be true. The market is so reflective, especially for the Cryptocurrency market.
But there's more to this story
You will hear less and less satire about the correlation between Bitcoin and the global liquidity cycle, but this is precisely where the data matches the price trend.
Global liquidity seems to have bottomed out at the end of 2009, marking the bottom of Bitcoin and the S&P 500 Index. At the beginning of this year, we saw a slight rebound in global liquidity. Bitcoin has risen by 80%. The S&P 500 index rose 15%.
In the United States, inflation has ended and the Federal Reserve has suspended interest rate hikes. Since the beginning of this year, asset prices have been rising and are likely to continue to rise for some time.
But the possible shift in monetary policy still shrouds some dark clouds.
Specifically, $7 trillion of treasury bond will expire next year. These debts need to be refinanced/reissued to support fiscal expenditures. According to the latest data from the Congressional Budget Office in May 2023, the US deficit is expected to reach $1.5 trillion this year.
At the same time, debt interest expense is the second largest expenditure of the US government, approaching $1 trillion annually.
In October of this year, student loans for 43 million Americans will resume payment, averaging $503 per month. A survey shows that 37% of borrowers say they need to cut other expenses. 34% of people say they simply cannot afford it.
In addition, banks are still requesting to join the Federal Reserve's bank term financing program:
Consumer credit card loans reached a historic high of over $1 trillion;
Bank loan standards also indicate the impending economic recession.
Finally, the commercial real estate industry has over $1.5 trillion in debt that needs to be refinanced in the coming years. This is because interest rates are at their highest level since 2006. Of course, due to remote work, the occupancy rate and valuation of office space have decreased. To make matters worse, a group of analysts at Citigroup found that over 70% of commercial real estate office loans are held by regional banks.
These factors should further bring downward pressure to inflation.
At present, the pricing of CPI inflation swaps will reach 2% as early as October this year. The Federal Reserve expects inflation to be 1.3% this year.
Link these together:
The market price and liquidity of Bitcoin are under threat. From the perspective of the United States, the liquidity situation seems to have bottomed out and rebounded. We have also heard the same story in China and Japan. Europe is also in a similar situation. As inflation returns to 2%, the global economy should slow down.
At that time, the Federal Reserve can change monetary policy.
This will open the gates of another wall of quantitative easing. As for the schedule? We believe that this will be achieved in the coming years.
This shift in liquidity is consistent with the halving cycle of Bitcoin and its related narrative.
Do you understand? The cycle of Bitcoin depends on liquidity. But liquidity is not everything.
If we consider issues such as network growth, this may be helpful.
Liquidity+Growth in Network Fundamentals+Correct Narration=New Price Discoveries.
The reflexivity of new price discovery=new venture capital funds. This will lead to more construction, more users, and further price discovery.
Speculation is the flywheel that drives true capital formation and economic development. This is chaotic, but it is happening.
The Bitcoin network performs strongly in almost every metric we track. We will list some below:
Non coin wallets: So far, we have seen steady growth in non coin wallets in each cycle. Our prediction is based solely on last year's growth (currently 47 million). Please remember that this number does not represent all Bitcoin holders. Due to data being limited to on chain wallets, it cannot represent tens of millions of exchange customers.
Developer: We have seen an increase in development activities recently with the introduction of the Ordinals protocol.
Hash rate: an indicator of cybersecurity and miners' emotions. Over the past two years, Bitcoin's computing power has tripled, indicating that miners are optimistic about Bitcoin.
Long term holder behavior: One of the most important indicators we track. The proportion of supply held for a long time and not transferred within a year is currently at its highest level in history. Through cycles, we observe that investors and users typically enter a bull market. Then they will have a better understanding of the special currency and tend to become long-term holders. We can observe this from the growth of wallets exceeding 1 Bitcoin, which has recently exceeded 1 million. As long-term holders grow, it lays the foundation for the next bull market, where buyers will ultimately dominate the market.
Lightning Network: Lightning Network is the second layer expansion solution of Bitcoin. Its payment cost is much lower than transactions on major Bitcoin networks. Although it is still in its infancy, we can see that the transaction volume of Lightning Network has increased significantly in the past few years.
Coinbase sparked a bull market in 2013.
Ethereum provided fuel in 2017.
Microstrategy, PaulTodorJones, Tesla, Block, MassMutual, and other companies destroyed the market in the previous cycle.
What will happen in 2024/2025?
The approval of BlackRock ETF will be a good start.
BlackRock has an impeccable reputation. Among more than 500 ETF applications, only one failed.
To some extent, BlackRock's name appears in this ETF, which is more meaningful than Bitcoin spot ETF itself.
BlackRock's name is very important to certified public accountants, asset management companies and almost all investors on the earth.
In the past, representing clients to invest in Bitcoin may have exposed fund managers to professional risks. BlackRock ETF may completely reverse this situation.
Some questions worth thinking about are: what will happen if the greater risk is not to configure 1% Bitcoin through trusted tools such as BlackRock Spot ETF?
Price behavior in the cycle and predicting the next cycle
5 key points:
Market timing: The best time to buy Bitcoin is when everyone thinks Bitcoin is dead. We have two opportunities in 2022. Last December, we reminded readers that Bitcoin is bottoming out and rebounding. Secondly, when is the second best time to purchase Bitcoin? From a historical perspective, this situation occurred before any decline to half. Of course, seizing market timing is difficult. The US dollar cost averaging method is applicable to assets such as Bitcoin that are in the early stages of global adoption. Even those who bought at the top of past cycles have done well in the long run. Bitcoin is currently down 55% from its historical high, but its 10-year, 7-year, 5-year, and 3-year compound annual growth rates are 84%, 73%, 36%, and 49%, respectively. The key is to have long-term beliefs. Know exactly what you're buying, ignore the noise.
Prediction: Based on the first three cycles, we predict that the return rate will continue to decline. The target price for Bitcoin in this cycle is $158000.
A higher-level framework: We predict that the market value of Bitcoin will peak at $3.15 trillion in the next cycle (compared to $1.2 trillion in the previous cycle). This will bring the market value of Bitcoin to 25% of gold. Long term readers know that we ultimately believe that Bitcoin will catch up with and surpass the gold market (currently at $12.6 trillion).
Overall, we believe that in the next cycle, the total market value of Cryptocurrency may soar to $8-10 trillion (compared with $3 trillion in the previous cycle). In Ethereum, there may be interesting opportunities in competitive L1 and key infrastructure.
Post cycle low point: We expect the volatility of Bitcoin to continue in the coming years. Having said that, we expect volatility to weaken over time. The growth of market size, more experienced investors entering the field, mature market structures and products, new regulatory regulations, and the reduction of leverage in the 'Wild West' have all contributed to this result. Please note that Bitcoin is like a commodity - its price far exceeds its production cost in a bull market, and then falls below (sometimes even below) its production cost in a bear market.
Regarding the previous cycle, we believe that due to China's mining ban, this cycle has not fully realized its potential. If you remember, the price of Bitcoin has just hit a record high, Tesla has just purchased Bitcoin for its balance sheet, and Michael Sellers has purchased billions of dollars of Bitcoin through MicroStrategy and media travel. We believe that without China's mining ban, Bitcoin could have exceeded $100000. As miners are concentrated in Chinese Mainland (where there is abundant cheap hydropower), the ban eventually led to forced sale and surrender of miners.
Narrow down and see where we are today relative to past cycles.
Market value/realized value:
This indicator measures the ratio of market prices to the average price of each Bitcoin in circulation. We left the green zone in early 23, which has always been a good entry point in history. That is to say, we are still at a relatively low level.
Realizing Value:
Realized value represents the average price, which is the purchase price of each Bitcoin in circulation. The current price is $20323.34.
200 week moving average heat map:
In 2022, History of bitcoin fell below the 200 week moving average for the first time in its history and lasted for about 9 months. Since then, Bitcoin has rebounded, with a current trading price of $26665 for 200WMA.
The adoption cycle of Bitcoin is largely driven by the "narrative" of halving global liquidity, network growth and supply shocks. These three elements seem to fit together very well.
In addition, a Bitcoin spot ETF called BlackRock will be approved in the coming months.
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