Investigating the Bitcoin Halving
CRYPTODAY 134
On 4/20, the Bitcoin blockchain went through its fourth scheduled halving, officially entering its 5th era at around 8am Manila time. The evening before, I hosted a meetup in the GCash offices (together with our friends at Bitpinas) where I charted the history of the halvings and where I thought we were heading next. Today’s newsletter summarizes my talk and as a bonus includes the immediate aftermath of the 24 hours after the halving event itself.
The first halving happened in Nov 2012, when $BTC was around $20. There was nothing to report for the next few months — just a generally flat price with a small bump in early 2013 — and then out of nowhere, a massive 50x run-up that would peak at over $1100 almost exactly a year after the halving itself. This was followed by the well-known collapse of MtGOX (that era’s Binance) and a faith-shaking, year-long price slide which eventually bottomed out at $180 (-86%) in January 2015.
The 2016 halving had a very similar shape as the first one: a generally flat price in the months surrounding the event itself, but this time the climb took a lot longer. We would eventually find our new peak in December 2018, a full 18 months after the halving. At $20k, it was a 30x gain from the halving price. It was followed, rather ironically, by another exchange collapse — this time it was the Japanese exchange Coincheck. The price would spend the next year in a slump, eventually finding the cycle bottom at $3800 in January 2019 — an 81% drawdown.
By 2020, there were enough new market participants to materially change the shape of the price movement. The halving event hit in May 2020, and the price began to climb later that same year. It would hit two peaks in 2021 — one in April at $61,000 (700%+) and again in October at $69,000 (780%+). The drawdown between these two heights was as low as $35,000, large enough for some to conclude that the bull run had already ended in June. But the true conclusion of the bull market happened in mid-2022, with a series of industry collapses: 3AC, Celsius, and then eventually FTX in November. At the time, FTX was the second or third largest crypto exchange in the world, and the price would plummet to $16,000 (-76%) as a result of their shutdown.
Which brings us to 2024. Not only is there a lot more capital in the space now, but much of it is institutional capital from the Bitcoin ETF providers in the US stock market. With three halvings under our belts, there’s now enough collective intelligence to make moves that will alter the shape of our chart so that it becomes unrecognizable. The bottom line: if you knew that the halving events historically induced price pumps of 700-800%, wouldn’t you try to buy as soon as possible? This simple idea drove the market upwards so fast in 2024 that we breached the previous ATH in March — a full month before the halving was even scheduled to happen.
So what comes next? Obviously, we don’t know. But here are some ideas. The US-based Bitcoin ETFs have slowed down in their buying and the data is telling us that there hasn’t been a material change in their aggregate positions since April began. In the near term, any positive price movement is likely going to come from Asia then, with the newly approved Hong Kong-based ETFs. On the downside, the US Federal Reserve has signaled that they will not be reducing interest rates in their upcoming meetings, which is already causing the markets to contract in anticipation. One of the most obvious effects: the USD-PHP exchange rate has hit its yearly high at over ₱57.50. (Easiest way to think about this: the US is offering you a whopping 5.5% annually to just sit and hold your dollars instead of investing it. Most people would take that deal. This consequently makes it even less desirable to hold PHP, which in turn causes the peso to slump against the dollar.)
In terms of the Bitcoin price, I think that we could see another double, or perhaps even a triple, peak in the 2024-2025 timeframe. I’m still optimistic about the price and am targeting $100,000 to $130,000 as the cycle ATH. This would be a 700% gain from the absolute bottom, which as I write this, does feel a little ambitious. On the other hand, it’s only 100% up from the previous cycle’s ATH, so it’s a justifiable target from that perspective.
And what happened immediately after the halving hit? People always fantasize about how halvings will herald a price pump, but it’s historically never been the case. Instead, what we saw yesterday was a truly massive 2000% increase in network fees. In the days before the halving, the average block of transactions would cost about 1 bitcoin in fees to transmit. Yesterday, I was seeing blocks that cost over 20 bitcoins to transmit. What was causing the pump? The new Runes protocol. This is a community-built idea that allowed people to create memecoins and Bitcoin’s version of NFTs in a more direct way on the chain. The hype was so great that the Bitcoin blockchain was unusable for most of the day, with individual transaction fees in excess of $150. As I’m writing this, the network is still congested, with individual fees in the $10-20 range, but it looks like the initial insanity has settled down. We’ll see what happens on Monday evening when the US market comes back online.
Keep safe out there, cryptofam!