Academy Industry Analysis Article

What Will Happen to Bitcoin’s Price Post Halving? Bullish and Bearish Outlooks

2020.05.11

Bitcoin (BTC)’s third block reward halving is set to take place today, May 11, in just a few hours. 

In the past, Bitcoin halving events coincide with an upswing in general awareness, trading activity and attention towards crypto markets as a whole.

The halving mechanism — part of Bitcoin’s design — takes place roughly every four years. Since Bitcoin’s inception in 2009, there have been two block reward halvings so far.

Following the price patterns after the past two halvings, the industry is generally in agreement that Bitcoin’s third halving has the potential to bring BTC’s price to new heights over the long-term period. 

In just a one year period following the previous halvings, in November 2012 and July 2016 halvings, the price of Bitcoin grew x80 and x4, respectively. 

Bitcoin’s price short term

What isn’t so clear, many analysts argue, is what will happen to Bitcoin — and other crypto markets consequently — short term, in the days, weeks or even months right after the block reward is cut in half. 

With the third halving just hours away, the speculation regarding the short-term implications on the market has reached a fever pitch. Crypto analysts are roughly divided on what the immediate post-halving market conditions will look like — bullish or bearish? 

The bullish argument foresees upward movement in price as the halving hype brings more buyers into the market, whereas the bearish trader anticipates a short-term sell-off that will push the price down.

The bullish case for Bitcoin 

Short-term: miners make the case for a bull market

Some of them more bullish outlooks on the effects of the halving short term come from large-scale Bitcoin miners. According to OKEx Insight’s in-depth analysis on miners and the halving:

“Miners are actually responsible for a large chunk of capital outflow from the Bitcoin network as they sell their BTC to cover operational costs every month. This means there is constant downward pressure on Bitcoin’s price due to miners offloading their earnings on the market.” 

From the viewpoint of the industry’s more profitable and established miners, the phasing out of their smaller counterparts could relieve the market of inefficient selling pressure, and allow the price to rise. 

Earlier this month, Cointelegraph reported on the results of a poll held in China by crypto services firm RockX. The poll included responses from 42 major Asia-based Bitcoin. The majority (57 percent) of participants expect a surge of new Bitcoin buyers in “near future.”

Long term: Stock-to-Flow says BTC will rise post halving

When forecasting a long term bull market post-halving, many analysts lean on the stock-to-flow (S2F) quantitative model, as laid out in a recent report from crypto analytics firm Messari. The concept — which is typically applied to precious metals like gold and silver — is used to talk about scarcity and how price relates to supply and demand.

In the model, stock is the total amount of the asset that already exists in circulation. Flow is the amount of the asset being newly minted every year. The S2F ratio, at any given time, is the number of years needed to reach the current supply. The higher the number — i.e. the longer it takes to reach that supply — the more scarce the asset is. 

Bitcoin has scarcity built into its design — there will only ever be 21 million bitcoins created. Also, Bitcoin’s block reward halvings ensure that the rate at which new bitcoins are produced steadily and regularly declines over time. 

Analysts argue that, given Bitcoin’s very predictable issuance, its S2F can be accurately plotted and shows correlation with BTC’s price. Messari’s report states:

“In fact, not only do the two variables [S2F and price] appear to be correlated but they are cointegrated, which is a more rigorous statistical relationship between two time series. […] Therefore, the cointegration of price and S2F implies that in the long run they will not deviate significantly. Should this trend play out, the model suggests bitcoin will rise at least an order of magnitude as it has in the prior two halvings.”

Traders’ long-term outlook 

Though a price correction will reduce the price for a time, popular cryptocurrency trader and analyst Michaël van de Poppe told OKEx Insights that he is decidedly bullish about Bitcoin’s price long term. Commenting on the markets just days before BTC’s most recent rally, he stated:

“An event like the halving triggers retail traders and people to buy into the event, as just discussed. My most likely scenario would be a FOMO push towards $9,500 or $10,500 after which price corrects towards $6,000-$7,000 area. That higher low and support area should be the confirmation for the bull market to occur in the coming years.” 

A crypto market analyst known on Twitter as Byzantine General expressed a similar long term outlook in comments to OKEx Insights. The trader invoked what appeared to be a stock-to-flow-based argument to predict that Bitcoin’s price is likely heading upwards:

“I’m of the opinion that long term the Bitcoin halving is fundamentally bullish. This is just common sense. It’s a matter of supply and demand. Supply decreases, so in the assumption that demand stays at least somewhat the same, price will eventually move up.”

The bearish case for Bitcoin 

Short term: ‘Buy the rumor, sell the news’

Some analysts predict that post-halving markets will see a correction short term as demand dries up, and a torrent of supply looks for buyers.

When asked for his thoughts on the short-term impact the halving will have on Bitcoin, van de Poppe told OKEx Insights, “[t]he halving itself is practically a short-term non-event, as the real impact of the halving will occur during the coming years.” 

Van de Poppe predicted that, following a brief rally before the halving, the price of Bitcoin will fall in the short-term period after the event. His assessment of the market takes history and hype into account: 

“The halving is a typical ‘buy the rumor, sell the news’ event in which a rally occurs prior to the event. However, once people start to realize that the halving itself doesn’t have much impact and the hype goes away, a correction should be the most likely case to occur. Through such a correction the price of Bitcoin should retrace towards its equilibrium.” 

This hype-driven pattern was indeed visible this past week, as Bitcoin surged over $10,000 for the first time since February. Following the pattern’s logic, traders who bought Bitcoin before the rally leading into the event then sell their position as the price peaks. 

Once the price begins to dip, it shakes the confidence of other investors, who may also sell-off their Bitcoin in a panic. As we saw over the weekend, however, Bitcoin has already begun to correct, plunging 15 percent in just an hour on Sunday, before regaining some of its lost value this morning. 

Byzantine General shared van de Poppe’s view on BTC’s behavior around the halving, invoking the same hype-induced analogy. The analyst foresees an anticipation-driven pump, followed by a short-term correction post halving, stating:

“Once the halvening actually happens I expect a sell-off short term. Kind of like buy the rumor, sell the news. A story as old as time. Since this also happened during the last halvening (rally before, sell-off short term, bullish long term) I do think this halvening will play out similarly to the previous one.”

Long term: crypto critics are always bearish 

While few industry analysts are bearish on Bitcoin in the long term, there are critics who believe most of the price action and trading around Bitcoin is speculation-driven.

In a recent tweet, stock broker and Bitcoin critic Peter Schiff argued that Bitcoin’s price would quickly hit a ceiling around the halving: 

“A consensus trade is crowded and usually doesn’t pan out as the crowd expects. I can’t think of a more consensus trade in #Bitcoin than being long going into the halving, an event that is universally believed to be extremely bullish. So once the halving occurs, who’s left to buy?”

Citing the price decline this weekend, Schiff added in another tweet that “Bitcoin speculators” had “jump[ed] the gun.” 

Another well-known and outspoken crypto critic, economist Nouriel Roubini, also tweeted about this weekend’s crash, calling recent price movements a “pump & dump” propped up by fake volumes in a whale-controlled and manipulated market.

Stepping back from price

Some industry commentators have encouraged a move away from the focus on Bitcoin’s price around the halving and stressed the fundamentals of the cryptocurrency’s design that the event represents.

In a recent tweet, Jake Chervinsky, general counsel at blockchain company Compound, pointed to the bigger picture, stating:  

“I’m not saying the halving won’t affect price at all. I just don’t think 900 fewer bitcoins per day is that big a deal. To me, the halving should be a celebration of Bitcoin’s monetary policy, its soundness, its freedom from the whims of central bankers. Not a ‘wen moon’ party.”

In Messari’s recent halving report, cited above, the firm’s researcher Ryan Watkins expressed a similar sentiment on the phenomenon:

“At best the halving is a once in every four years marketing event where Bitcoin reminds the world of its superior properties as a monetary good… To the extent all this compels new people to make an investment in Bitcoin, the halving is a bullish catalyst.” 

Bitcoin and cryptocurrencies are famously volatile. How the post-halving market behaves in the days and weeks that follow is, of course, uncertain.

Whether the third Bitcoin halving precipitates a price surge or drop short term, the prevailing wisdom shared by industry experts is that the market conditions in the moments after the event are fleeting and overexaggerated. 


Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.


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