Research: 2 perspectives on Bitcoin halving predictions

Before Labor Day, BTC once rose to $9,000, sweeping away the haze of the 312 plunge. As a result, Bitcoin's increase in April reached 34%, far exceeding other assets. Since entering May, the halving bull market seems to be dormant and waiting for an opportunity to move, and BTC fluctuates in the range of $8449-9346. We are only 4 days away from the halving, so how far are we from the bull market?

Perspective 1: Peripheral Market

Last night was Wednesday, US time. The Dow Jones Index and the S&P 500 Index fell for the first time in three days. The Dow Jones Index closed at 23,664.64 points, down 218.45 points, or 0.91%, and fell to the low of the day in the last hour before closing. With the US crude oil price falling by 2%, it also ended the momentum of rising for five consecutive trading days.

Of course, the ultimate root of all this is that the number of new crown infections in the United States has exceeded 1.22 million. If this trend continues, lifting the lockdown will only cause the number of infections to peak again, but Trump is determined... It can be said that the darkest moment is not far away. Experts predict that the number of new crown infections will reach a small peak in June. In addition, according to foreign media reports today, the United Kingdom has become the first country in Europe with more than 30,000 deaths from the new crown...

Affected by the long-term decline of the peripheral market, BTC is unlikely to have a big rise after the halving. Although the increase is higher than other financial assets, there are natural obstacles for institutional investors to enter the cryptocurrency market. With the increasingly poor economic fundamentals, the possibility of institutional investors buying high-risk emerging assets such as BTC is almost zero. Currently, the world's largest cryptocurrency asset management company (institutional investor) is Grayscale, which manages $2.2 billion in assets. In the first quarter of this year, it raised nearly $500 million, which is twice the amount raised in the previous quarter. However, it purchased half of the total output of Ethereum this year, and seems to be more optimistic about Ethereum 2.0.

So far, BTC has not seen a big rise in wealth effect. From the perspective of the peripheral market, it is difficult for BTC to have a big rise just by relying on stock speculation, let alone rush into a bull market. Unless there are geopolitical events in the world that strongly trigger everyone's war risk aversion, the possibility is extremely small.

Perspective 2: Miners

If the price of BTC fails to double after the halving, the miners’ income will be cut in half due to the increase in difficulty caused by the halving. If miners want to maintain their ROI before the halving, either the price of BTC must rise or the difficulty of mining needs to be reduced.

Let's take a look at the comparison of computing power data one month ago and now:

As the computing power of the entire network gradually increases (part of the computing power may be transferred from BCH and BSV, which have already been halved), the price of BTC has also been pulled up, and the daily theoretical income of miners has also increased significantly. Is this a coincidence?

Of course not. The power of the top mining pools and big miners is the mysterious oriental power behind the rise of BTC. An organization once released a set of mining pool revenue data: the actual output in 2019 was about 678,700 BTC, and the annual transaction fee (miner fee) was about 19,473 BTC. According to the average price of Bitcoin of $7,365.21 in 2019, the annual miner income was about $5.14 billion. Due to the huge profits, many top exchanges have also entered the mining pool sector, including Huobi.pool, OKExPool, Binance Mining Pool, etc.

If calculated based on the full-year output in 2019, the BTC mining output in 2020 is only 678,700/2, or 339,350 coins. Large miners may be motivated to raise the price of the currency to US$10,000 and maintain this price for a long time because of their profits. However, will the large mining pools and exchanges with reduced transaction fee income raise the BTC price to twice the average price of 7,365.21 in order to maintain their pre-halving profits?

Therefore, when we judge the trend of BTC from the perspective of miners, we need to stratify them. Some small miners may sell most of their coins after the halving, before the price plummets. First, they hoard coins just to wait for this moment to sell, and the purpose is direct; second, due to the increase in difficulty, they have to sell coins to maintain operations, or even close the mine directly. This is why many mining machine sellers say that it is cost-effective to buy mining machines after the halving, and many small-scale mining farm owners will be eliminated in this halving. After these speculative or surrendered miners sell, the price of BTC will stabilize or even rise.

Another part is the large mining farms and mining pools with exchanges or capital behind them. They do not need to sell Bitcoin immediately when the halving comes in exchange for funds to continue operating, but may push the price to a high point, earn high miner fees, push up prices while selling in small quantities, and attract a large number of newcomers to enter the market... The biggest difference between them and small mining farms is that these mining pools and exchanges do not need a one-time harvest, but a sustainable and scientific harvest, and they do not rely solely on harvesting to earn profits. What is the pattern? This is the pattern.

We retrieved the historical data of BTC from Feixiaohao: difficulty bottoms (miners fled) were found in December 2011 ($4.6), May 2015 ($230), and December 2018 ($3896), and then the price continued to rise from these bottoms until the historical high price increased by about 100 times.

In other words, the BTC halving is likely to happen in the following way: small miners will initially sell off a large amount of BTC and shut down their mining machines, causing the price of the currency to fall, and then it will rise from the bottom all the way up, and the real bull market will begin. If you want to hunt for this important moment, you can follow the daily fluctuations of BTC mining difficulty data on Feixiaohao.

As mentioned earlier, the halving cycle will eliminate many miners, but it will also speed up the reinvestment cycle of large mining farms. The previous low-efficiency mining machines will be eliminated, and they will have to use the coins they sold to buy new mining machines. If there is no halving, these large miners only need to use the old mining machines to mine coins and hoard them. It is difficult for the BTC mining market to enter a new stage of development. Without the interference of other external factors, it is naturally difficult for the coin price to have a new breakthrough.

The more critical the moment, the more carefully we need to observe the movements of multiple parties. Whether it is the simple change in supply and demand caused by the BTC halving, or the analysis from the above perspective, it is difficult to determine which factor is at work until the last moment, so we have to wait and see.