Cloud Hosting

Bitcoins current rally comes as two bullish narratives converge: In less than eight weeks, the halving will cut new supply in half, meanwhile spot funds already gobble up coins faster than theyre mined.

Newly-found demand from spot ETFs aside, halvings are generally viewed as catalysts for tremendous growth for bitcoins price.

But over the past two cycles, its crypto, not bitcoin, which has benefitted the most. Starting from one year before each previous halving, bitcoin peaked at:

(For the fractal-minded, interestingly bitcoin peaks are divided by between six and eight each cycle. If that repeats, the peak for bitcoin this time around would be less than 170% with bitcoin already securing most of those gains.)

Read more: How the halving could impact bitcoins price

All this is to be expected considering how big bitcoins market value is already, beyond $1 trillion. Its feasibly impossible for bitcoins price to multiply by 500 times in two years, as was the case in 2012 when its capitalization was under $200 million.

Bitcoin (BTC) makes up about half of the entire crypto market right now, but there are tens of thousands of other cryptocurrencies out there, and on the whole they tend to hitch a ride when bitcoin rallies hardest.

In fact, everything that isnt bitcoin stands to gain much more from bitcoin bull runs than bitcoin itself.

Crypto excluding bitcoin was altogether worth $64.9 million one year before the 2016 halving.

One year after the event, at the height of the 2017-2018 bull run, that figure had multiplied more than 6,000 times to $421 billion, largely due to the successes of XRP, Ethereum and Bitcoin Cash.

Similarly during cryptos previous cycle, between 2019 and 2021, crypto outside of bitcoin was valued at $71.6 billion one year before the 2020 halving.

A year and a half later, when bitcoin was near record highs, all other crypto was worth $1.7 trillion growth of more than 2,000% to bitcoins 1,000%.

Three halvings, its worth repeating, is far too small a sample size to derive any sort of meaningful analysis.

Such a small sample size means factors other than halvings are just as likely to play a role in forming what seem to be bitcoins unstoppable four-year market cycles.

The global liquidity cycle, which tracks how much cash is sloshing around the global economy for one, correlates with bitcoin rallies to perhaps an even tighter degree than halvings.

As it turns out, global liquidity also runs on four year cycles.

Proving waves of global liquidity caused bitcoins explosive growth is still practically impossible same with halvings.

Its likely a mixture of both: Supply decreases as global liquidity deepens to a point where it spills over into speculative asset classes like crypto, driving up demand.

Not counting one day last week when spot ETFs were net sellers, physically-backed bitcoin funds in the US have altogether bought almost 6,350 BTC ($362 million) per trading session, on average.

Bitcoin miners are on average finding 147 blocks per day and each comes with a 6.25 BTC ($356,600) reward, the networks way of distributing fresh coins.

So, miners are pulling less than 920 BTC ($52.5 million) out of the blockchain per day. Bitcoin funds are buying up nearly six times that amount on behalf of shareholders, led by BlackRock, Fidelity and Ark-21Shares.

Read more: 20% of bitcoin network hash rate could go offline after halving: Galaxy

Many aspects of the bitcoin market outpace bitcoin supply. About 35,000 BTC ($2 billion) has flowed into crypto exchanges every day this year on average, for one, indicating potential bitcoin sales up to 37 times more than is mined each day.

Even factoring in bitcoins latest price jump, if only a small percentage of the bitcoin miners sent to exchanges ends up sold, theres hypothetically enough supply out there to meet demand without prices immediately going parabolic.

Still, with the halving around the corner expected on April 19 or 20 its easy to see how theyve captured imaginations across the market. Crypto native firms like Bitwise, Bitfinex and CoinShares have put out attempts at unpacking their mystique, as have finance players including JPMorgan and Standard Chartered.

Read more: Bitcoin halving expected to hit on 4/20

On a tangible level, the bitcoin halving will radically overhaul the economics of bitcoin mining, to the point CoinShares expects several major operators to struggle if bitcoin doesnt stay above $40,000 (so far, so good).

Standard Chartered, known for its bombastic crypto price predictions in recent years, meanwhile maintains a call for $100,000 per coin by the end of this year, in part due to how far the halving might skew supply and demand toward the latter.

Its tempting to map bitcoin price action after previous halvings. After all, bitcoins biggest bull runs have peaked between a year and a year and a half after halvings.

Why this time would be any different is anyones guess, apart from to prove that past performance does not guarantee future results.

No matter what impact halvings have (or dont have) on prices, looking back at the data shows bitcoin market cycles are dampening over time despite the massive capital injections every four years.

Updated Feb. 27, 2024 at 5:09 pm ET: Fixed denomination.

Dont miss the next big story join ourfree daily newsletter.

Excerpt from:
Bitcoin halvings may be bullish but returns have shrunk every cycle - Blockworks

Please. Lets stop fretting about the effect that Bitcoins next halving will have on the market. Weve been here before.

Historically, the supply shock generated by the halving has marked the start of significant bull markets for bitcoin. And as we approach the fourth halving, I believe that this trend will continue, potentially taking bitcoins price to a new all-time high.

But theres a sector of the industry that is arguably the most concerned about bitcoins future: miners.

Bitcoin miners need the price to increase to stay in business, especially as their proceeds are about to be reduced by half. This effectively means that the cost of mining one bitcoin doubles (assuming electricity and hardware costs remain roughly the same).

The thesis is simple. If miners rewards are cut in half and the price doesnt compensate for the loss, miners wont be profitable enough to keep their ASICs running as transaction fees cannot (yet) take up the slack.

Considering the supply shock, moving sideways into the halving would be like the bitcoin price dropping to $15,000 today, which would put most miners out of business.

All this comes during an already delicate situation for the many miners operating with razor-thin profit margins, even with the inexpensive electricity costs many have access to. Miners must still cover those costs whether their mining machines are running or not: Maintaining current profitability remains critical to avoid shutting down.

But does all this mean the halving will destroy bitcoin miners? Of course not.

We are already starting to see some of these mining operations set their contingency plans in motion. Marathon Holdings, for example, has invested $179 million to set up two entirely new mining sites, which will allow them to drop production costs by 30%. Other mining companies have ramped up their hardware acquisitions to enter the halving with increased efficiency. Finally and most noticeably, bitcoin miners are liquidating their inventories, stacking up liquidity ahead of the halving to face costs and capitalize on low ASIC prices as profitability drops.

There are massive expectations from the Bitcoin community and Wall Street especially after spot bitcoin ETFs trading now for the halving to bring bitcoins price to new all-time highs.

Instead, its more probable that were going to experience a lot of pain at least in the relative short term.

All mining stocks leading up to the halving are likely going to tank, as miners scramble to find financing to stay alive. Would you invest in a company that you knew was about to get its revenue cut in half with no plan for correction?

The first few months will be the crunch period. Miners will be forced to turn off older, less efficient hardware, tighten their belts and grit their teeth. During this time, difficulty will drop as hashrate decreases, leaving miners waiting for the profitability to increase.

However, as past halvings have shown us, price doesnt increase until several weeks have passed. Assuming the pattern repeats itself, this wont happen until the end of Q3, and probably only just enough to give miners some breathing room.

By the end of the year, we will likely see a holiday bull run, followed by the typical new years correction. The crescendo weve all been waiting for wont come until the spring of 2025 and continuing through the rest of 2025.

Bitcoins price might rise immediately. After all, thats what everyones expecting. The amount of anticipation alone might be enough to become a self-fulfilling prophecy. Then again, the halving is likely already priced in its the most public, predictable event in finance. Just like we didnt have the god candle everyone was expecting after the bitcoin ETF approval, we wont get it after the halving either.

Ordinals might also help increase the price of bitcoin. Why? Greater use of the Bitcoin blockchain in general leads to greater competition for block space, which in turn means higher transaction fees in each block for miners to keep.

Read more from our opinion section: Bitcoin ETFs are not cryptos finish line

We are already starting to see juicy sized blocks where the fees outweigh the block reward. This was Satoshis plan all along, and it seems to be working, partly supported by the ingenious use case and frenzy around Ordinals.

However, this is the most likely outcome: Price lags behind a handful of weeks. In turn, this will cause the difficulty to keep dropping until the surviving miners are able to mine profitably again. This network balancing act albeit Bitcoins intrinsic mechanism to maintain security and balance is brutal, and will certainly leave a trail of bodies in the process of finding equilibrium.

Competition is about to get fiercer, and only the miners who best adapt to the coming changes in price, transaction fees and network difficulty will survive to reap the rewards.

All in all, the situation in the coming months resembles an old story of two men hiking in the woods, who stumbled across a mean grizzly bear about to charge. The first man quickly bent down and swapped his hiking boots for running shoes.

The second man scoffed at the first, telling him that he could never outrun the bear, to which the first man replied: I dont have to outrun the bear. I just have to outrun you.

But as we approach the fourth halving, the bear is even bigger and faster. All miners will have to adapt and pick up their pace. Some will die. Some will just survive. And some will thrive. Its the crypto version of survival of the fittest.

Ryan Condron, the industry veteran & visionary CEO of Lumerin, is redefining cryptocurrency mining through innovation and ingenuity. Under his leadership, Lumerin is launching the Lumerin Hashpower Marketplacea decentralized digital mining solution that enables users to mine bitcoin remotely, from the cloud, and really anywhere without the complexities of traditional hardware.

Dont miss the next big story join ourfree daily newsletter.

Visit link:
Stop worrying so much about the next Bitcoin halving - Blockworks