What May’s bitcoin ‘halvening’ portends

Bitcoin enthusiasts are beginning the new year fixated on something that likely won’t happen until May.

Whether a planned reduction in rewards for mining bitcoin will boost prices or it’s already factored in is dominating discussions across mediums from Twitter to analyst reports.

In a “halvening” — also referred to as halving — bitcoin rewards that go to the so-called miners that support the coin’s network drop in half in order to prevent inflation from eroding the purchasing power of the coins. In the previous reductions, the price rose about 8 000% in the year after the 2012 decrease and around 2 000% in the 18 months following the 2016 cut.

Many observes say it could be different this time around since bitcoin has become more mainstream and such events are typically priced in as markets mature. The bitcoin options market, for example, doesn’t show increased price volatility for around the time of the halvening, which could mean that its impact is already factored in, according to crypto data tracker Skew.

Nic Carter, co-founder of Boston-based crypto market tracker Coin Metrics: “Unlike most bitcoiners, I don’t think the halving is particularly bullish. I am of the view that most people with a bitcoin position understand that it’s capped in supply, so the issuance change shouldn’t make a difference. Also, the halving is perfectly forecastable, so I have a hard time believing that it constitutes an informational shock. Bitcoin supply has been described and understood from January 2009 and has followed the ordained trajectory ever since.”

Scott Freeman, co-founder of JST Capital, a financial services firm specialising in the digital-asset market: “If one believes in efficient markets, one could argue that the effect of the halving should already be priced into the market. We continue to believe that the price of BTC will be driven more by an increase in the number of new entrants into the market. We feel that many miners are operating profitably at current prices, but that the less efficient miners will be under pressure once the halving occurs.”

Kyle Samani, co-founder co-founder of Austin, Texas-based hedge fund Multicoin Capital Management LLC: “The halvening is the largest Schelling point for trading in the history of crypto, and unlike past halvenings, there is a lot of leverage available today that wasn’t available four years ago. A huge Schelling point combined, with lots of leverage — both long and short — means there will be a lot of volatility. However, this doesn’t necessarily mean it’s a good trade to just go long vol because buying vol is expensive.”

Dave Balter, chief executive officer of researcher Flipside Crypto: “As Bitcoin is often influenced by momentum thinking — and the halving is magnified by a transformation of the economic structure — I’d estimate it will have a positive influence on price.”

Eric Turner, director of research at Messari: “Based on our research the only halving we saw a discernible impact from was the first. Assuming the potential sell pressure from miners compared to daily volume remains the same heading into the halving, the ratio of sell pressure/volume is the same for this halving as the last in 2016. The halving thesis relies a lot on the idea that miners need to sell their bitcoin to pay for expenses which is less true now that miners have balance sheets and hedging options that allow them to hold their bitcoin.”

Travis Kling, founder Los Angeles-based hedge fund Ikigai Asset Management: “Many market participants have been asking the question — is the bitcoin halving priced in? That’s the wrong way to frame it. A small single digit percentage of the world currently owns bitcoin. For those that currently own bitcoin, a large portion of them understand that bitcoin’s newly issued supply is cut in half every four years. This is likely a significant reason why they own it — because of bitcoin’s provable scarcity. For the many billions of people around the world that do not own bitcoin, few understand this provable scarcity characteristic. So for those billions, it cannot be priced in. To the extent those billions of people discover bitcoin in the future and decide to buy some, there will be less new available supply to satisfy that increased demand to purchase bitcoin.”  — Reported by Olga Kharif, with assistance from Eddie van der Walt, (c) 2020 Bloomberg LP