Bitcoin halving predictions: New highs, or little impact?

05 Jun, 2019
by David Borman
Bitcoin halving predictions: New highs, or little impact?

At this point, most in the crypto space are aware that in a little under a year Bitcoin will experience its next "halving event," when the block reward will be reduced by 50%. There has been much debate within the crypto space as to what effect this will have on the price of Bitcoin. Many are optimistic it will drive prices higher, others are concerned that this halving event may have the smallest impact so far. So, will Bitcoin reach new highs?

Every four years, the reward for each block mined on the Bitcoin blockchain gets reduced by half. This will significantly slow the amount of new Bitcoin entering into the market. The general consensus among most analysts is that the price of Bitcoin will rise in response to the halving. It is not always agreed upon how fast or how much, but it seems everyone can get on board that this reduction is a good thing for the price. Often the reason given when this idea is put forth is the basic market principle of supply and demand:

By this logic, it seems reasonable that the price of Bitcoin should rise in accordance with the reduced supply. This is a principal which drives the majority of economics, after all. It also doesn't hurt that this is basically what has been seen in previous market cycles.  The last couple of Bitcoin halving events that have occured did see the price turn parabolic shortly thereafter:

Many traders on twitter are well aware of this fact, and are trying to spread the word in a form that is easy for anyone to understand, even for those who don't really read charts:

Another prominent voice in crypto, Anthony Pompliano, joined in with the claim that it is precisely this limitation on resources that will cause institutions to begin FOMO buying into crypto after the next halving:

This logic was also the basis that Twitter analyst planB used to project that after the next event, the Bitcoin market would swell to over $1 trillion, putting the price per Bitcoin at about $55,000:

Now that it is clear most feel that the halving will cause the price to rise, the next question is how fast?

Well, planB also took a poll on twitter to see how most users felt the price of Bitcoin would react as we approach the next halving event, with over half feeling the price will continue to rally up to the event, only to really take off after:

It was noted, however, that this "front run" scenario has never happened before:

Speaking of which, it is important to note that when talking about Bitcoin price based upon historical action, that this is only the third time that there has been a halving in the history of Bitcoin. Two previous data points don't exactly make for much of a model, and nobody can argue that the market has evolved since the last bull run.

This brings us to some of our more conservative predictions. While we couldn't really find anyone who predicted that the price would crash after the halving, not everyone agrees how quickly it will go up. Some analysts have pointed out some key differences between this market cycle and the last two. They mainly circle around the fact that the market is not nearly as small as it once was, and this could affect the behavior.

Some observers have noted that each successive halving has returned a notably smaller percent gain in the market:

This was elaborated on recently in a Bloomberg article exploring the same issue. In it, Kyle Samani of Multicoin Capital Management is quoted regarding these halving events:

"The first halvening brought inflation from 40% to 20%. The second from 20% to 10%. The next halvening is going to reduce it from about 3.8% to 1.9%... On an absolute basis, each halvening is becoming increasingly less relevant."

Now as mentioned, only having two data points is not enough to establish a clear trend, but it is an interesting point nonetheless. It is further supported by another fact of the growing market, and that is mainly that most investors are notably more educated than they were on previous cycles. This isn't to say that the halving is not important to the price of Bitcoin, but it could mean that more than ever this event is already factored into the current valuation, meaning it may not move nearly as much as we anticipate when it occurs.

Also from the Bloomberg article, Gil Luria from DA Davidson & Co. is quoted:

"Since halving events are known well in advance, it is unlikely that they would have any impact on the price of Bitcoin... There are so many factors that impact the price of Bitcoin, but this should not be one of them."

Overall, it seems like virtually no one is arguing that the halving will be a bad thing for the Bitcoin price. Largely the question seems to revolve more around will the price go up quickly or slowly, and will it go up before, immediately after or well after the actual block reward reduction. Until it happens, we simply cannot say how much history will repeat itself. In the meantime, analysts will continue to look for hints as to how this next cycle is going to play out. 

stay right here with Chepicap for all updates on the 2020 Bitcoin halving!

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