Today is Bitcoin Halving Day
After spending a couple of years getting over that lost hard drive where I had stored two bitcoins; which later turned out to be worth 2 x $19,666 at BTC’s peak price, here I am back again sharing my views on what just might be one of the most talked-about events of the year, surely aside from the coronavirus pandemic and the subsequent V,U,W,L or whatever shape the economic recovery is expected to take.
First, you should know that I am by no means a crypto expert, if such a thing even exists, so I’ll stick to what I know, and that’s observing, analyzing, comparing, charting, and giving my opinion.
What’s the Buzz About?
Now that we are definitely over whether it’s Satoshi, Dorian, or even a Nakamoto at all, investors are focused on a 4-year recurrent event: The Bitcoin Halving.
In a nutshell, whoever invented the crypto has had their minds set on one thing and that’s ensuring an upward trajectory by setting up the technical infrastructure and providing an environment that’s inducive to growth. Some comparisons could be made between BTC halving and how central banks use interest rates to control inflation, growth of aggregate demand, and consumer spending…but yeah, let’s not. Maybe we’ll keep that for another read.
According to basic economic theory, the supply of a goodwill increase when its price rises. This measures how responsive the quantity demanded is affected by a price change. However, in the crypto world, the total number of Bitcoins is capped at 21 million (estimated to be reached around year 2140). So, we can safely assume that the BTC quantity is limited, just like gold or other precious metals.
Therefore, to increase the supply of Bitcoin gradually, miners receive “block rewards” on average every 10 minutes. But since the total number of Bitcoins will run out eventually, and all mining shall cease, these block rewards are “halved” roughly every 4 years. And this “halving” event occurs today!
Therefore, starting today, the miners will receive 6.25 BTC per block rather than the 12.5 they have earned in the past 4 years. In 2009, when Bitcoin’s network was launched, miners received block rewards of 50 BTC. Since then, the Bitcoin block reward has halved twice, first in 2012 (to 25 BTC) and again in 2016 (to 12.5 BTC). This halving of rewards is to continue until the network’s production of new coins ceases.
Image Source: coinsquare.com
In retrospect, as economies went through one round after another of quantitative easing, Bitcoin took the quantitative “tightening” approach (through decreasing supply or halving).
The “Post-Halving” Bull Run Effect
After the first halving, BTC enjoyed somewhere around a 9000% increase and a 4000% price surge after the second halving. The impact the current halving is to have on the market in the short term is unknown. But if history is to repeat itself, Bitcoin could be on the verge of its next bull run. This belief may be evidenced by the recent run-up on bitcoin prices. Or is it simply, that many investors seeking safety from the recent coronavirus-induced volatility, are buying bitcoin? Many Millennials and Gen-Z’ers I know, consider bitcoin as a special kind of “safe haven”. Other safe-haven assets, like gold, for instance, tend to show negative correlations with so-called risk-assets like stocks or oil or high-yield bonds. Bitcoin, however, tends to show no correlation to anything. And maybe this is why, in a full-blown crisis like the one we are witnessing today, bitcoin seems to be increasingly attractive. One thing is for sure, Bitcoin may be a speculative investment, but it remains the champion of digital currency.
Image Source: Coin Metrics
BTC went on a downtrend after printing an all-time high at $19,666 towards the end of 2017, continuing to print lower highs and lower lows. Then, as it bounced off the 200-period simple moving average (SMA) in the beginning of 2019, price got us back on track to printing higher, while being pressured from above by the $10,000 psychological key resistance level.
The RSI have proved to be less than perfect to say the least for gauging over-extended moves, which is often the case when an asset is trading based on market headlines, hypes, and fear of missing out (FOMO).
The MACD on the other hand, have proved valuable on many occasions, whether through market divergence signals or through a bullish cross of the MACD line and the signal line coinciding with a cross above the zero line.
The latter signal is where we find ourselves today. With the $10,000 resistance level giving way, a weekly close above my downtrend (orange lines) will be the spark that ignites the next BTC rally in my opinion.
Forgetting about the coin’s potential and all market rhetoric regarding a $100,000 target within a few years, a bull run with strong momentum and strong support levels at $6500-$7000 for a potential 100% gain should we test the previous highs is highly likely, and it does comply with my recommended 1:3 risk-return ratio.
Keeping to my straightforwardness, I haven’t gotten over those 2 lost BTC’s, and I can safely say that many out there will have a hard time getting over this missed opportunity if Bitcoin actually turns out to be the way of the new world.
Chief Market Analyst at SquaredFinancial
Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.
Research & Charts: Karim Maalouf, Senior Market Analyst | Squared Financial