The market is falling back, does the "halving market" still exist? | Plain Blockchain Primer

Produced by | Vernacular Blockchain (ID: hellobtc)

Recently, the price of Bitcoin has been falling, and the market is wailing. Data shows that in one month, the amount of liquidation reached 5.8 billion US dollars. You know, one month ago, the market was still happy and everyone was looking forward to the arrival of the halving.

This expectation stems from a rumor in the industry - the "halving market", that is, every halving of the Bitcoin block reward will lead to a price increase.

The supporting logic behind the rumor of "halving market" is that after the block reward is halved, the selling pressure from miners will decrease. If the demand remains unchanged, the reduction in supply will inevitably lead to an increase in prices.

Of course, there are also many people who are negative and skeptical about the "halving market". The recent market trend may make more people doubt it. So, does the "halving market" really exist?

01
Historical Bitcoin price action during halvings

To discuss whether the "halving market" exists, we naturally have to look at the historical price trends of Bitcoin when the block reward was halved.

Bitcoin has experienced two halvings. The first one occurred on November 28, 2012, when the price of Bitcoin was $12.3. It was followed by a bull market and reached a peak of $1,175 on November 30, 2013. The second halving (July 9, 2016) saw the price of Bitcoin at $654. After the halving, the bull market came again and reached a historical peak of $19,891 on December 16, 2017.

According to historical data, after each halving, the price of Bitcoin has indeed ushered in a wave of increases. Because of this, a large number of investors have great expectations for the upcoming third halving.

However, if we look at it from a different angle, we can come to a completely different conclusion.

Although the price of Bitcoin fluctuates greatly, often soaring and plummeting, when we extend the timeline, from an overall perspective, its price has been rising over the past decade. If we select any time point and look back one or two years, there is a high probability that it will rise sharply. Therefore, if we want to associate a certain surge with the Bitcoin halving, it can be said that it is a forced association made subjectively.

This is not only true for Bitcoin, but also for many other cryptocurrencies.

Strix Leviathan, a US company, analyzed the halving history of 24 cryptocurrencies, including Bitcoin, and concluded that there is no evidence that each cryptocurrency outperformed other cryptocurrencies that did not undergo halving in the months before and after its halving.

02
The “halving trend” is also difficult to explain logically.

Not only is there no obvious correlation between Bitcoin halving and price increases in history, but logically, the reduction in selling pressure caused by the halving is unlikely to have much impact on Bitcoin prices.

The upper limit of Bitcoin is 21 million. So far, about 18 million Bitcoins have been mined. Currently, the reward for each Bitcoin block is 12.5 BTC, and the theoretical output per day is 1,800 BTC. After the halving in May, the average daily output will become 900 BTC. Assuming that miners sell all the Bitcoins they have mined on the market every day, after the halving next year, the daily sales will only be 900 BTC less than now. Now, the global daily transaction volume of Bitcoin is at least hundreds of thousands or even millions, which is at least two orders of magnitude different from the current.

Therefore, although the halving of output reduces the selling pressure from miners, this reduction is a drop in the bucket compared to the huge amount of BTC reserves that have been generated and the huge daily transaction volume, and it can have no impact on the rise and fall of Bitcoin.

03
Why is there a saying of “halving market”?

Since there is no necessary connection between block reward halving and price increase, where does the term "halving market" come from?

The first reason is that human nature drives us to try to find a certainty for the various uncertainties in life. The violent fluctuations in the cryptocurrency market and the huge wealth effect make people always want to find some certain rules to explain and predict price trends, and the "halving market" statement just coincides with people's psychology, although this statement lacks persuasiveness in logic and facts.

The second reason is that the two halvings that Bitcoin experienced happened at relatively low price points, so the historical price trend seems to support the idea of ​​a "halving market." However, friends who have studied statistics should know that a sample size that is too small does not have statistical significance. Therefore, we cannot simply draw the conclusion that the price will rise in the third halving in May based on the experience of the first two halvings.

The third reason is the market push by investors and institutions. As the halving approaches, some projects will take the opportunity to hype the concept, using the halving concept to increase the token price and attract investors to buy.

What do you think about Bitcoin's "halving"? Feel free to share your views in the comment section.