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1/ The #Bitcoin block reward halving is less than a year away. How does the halving interact with Bitcoin's recurrent hype cycles, is it the cause of Bitcoin bull markets and what can we learn from past halvings?
Let's explore these questions in a thread 👇
Let's explore these questions in a thread 👇
2/ Every ten minutes (approximately) a fixed number of bitcoins are produced by #Bitcoin miners to compensate them for their job of verifying and ordering transactions. Because miners operate marginal businesses they tend to sell most of their mined bitcoins to pay their expenses
3/ Miner selling creates a constant downward pressure on #Bitcoin's price. Without new money entering the market, Bitcoin's price would decline.
At a BTC price of $10,000 approximately $14 million dollars must enter Bitcoin to offset the downward selling pressure.
At a BTC price of $10,000 approximately $14 million dollars must enter Bitcoin to offset the downward selling pressure.
4/ We know that #Bitcoin's monetization proceeds as a series of hype cycles. During the bull market, demand far outstrips miner sell pressure, but eventually the cycle ends and miner sell pressure is amplified by investor's fear selling.
5/ Eventually the cycle reaches capitulation as selling pressure is exhausted. The downward pressure of miner selling is then equipoised with upward pressure of HODLers who see long term value in #Bitcoin at the given price, and a steady price plateau ensues.
6/ The price plateau of the classic Gartner hype is only a temporary equilibrium, however. While supply and demand are evenly balanced during the plateau, the #Bitcoin halving disrupts the equilibrium by halving the sell pressure.
7/ After a halving, the equilibrium demand of HODLers now exceeds miner sell supply, tending to move #Bitcoin's price upward. The upward price action then slowly but surely feeds on itself and triggers the next bull market as new entrants are lured into an inevitable frenzy.
8/ This story is not quite complete however. Markets do not mechanically react to known future events (and halvings occurs on a predictable schedule).
Markets *anticipate* future events. From past experience it appears that the market discounts halvings about a year in advance.
Markets *anticipate* future events. From past experience it appears that the market discounts halvings about a year in advance.
9/ And so it has been with our current nascent bull market. Past experience has shown that the #Bitcoin market begins its upward ascent about a year before the halving, and about a year after the halving goes parabolic. But markets anticipate, so this make happen faster this time
10/ #Bitcoin's hype cycles seem to have a life of their own and do not seem to be affected meaningfully by good news (in bear markets) or bad news (in bull markets). It does appear, however, that the Bitcoin halving is a key fundamental driver of Bitcoin's monetization.
