Halve time report

The third Bitcoin halving is here, bringing with it a lot of hype. After all, if history is anything to go by, it will also bring a big spike in the price of a bitcoin. 

Every four years, the Bitcoin blockchain code chops in half the reward miners get for solving the proof-of-work math equations that mine a new bitcoin block every 10 minutes. The point, according to Bitcoin’s pseudonymous creator Satoshi Nakamoto, is to keep inflation going while the full supply of 21,000,000 bitcoins is being created. 

The block reward started at 50 BTC, dropped to 25 BTC on Nov. 28, 2012, then to 12.5 BTC on July 9, 2016. Today, when block 630,000 is mined, it will drop to 6.25 BTC.

That means a dramatically reduced supply of new bitcoins coming into the market, which should, in theory, result in an increase in value. 

Running up the score

At the first halving, BTC was $12, and spiked as high as $1,132. At the second, it was $648 and climbed as high as $19,497. For the third halving, today, it was at $8,679 at press time.

If the third halving’s decrease in supply has the same impact on prices as the last two, BTC will reach more than $115,000 at the height of the post-halving bull run, said Dan Morehead, founder and CEO of crypto hedge fund Pantera Capital, in its April 2020 newsletter. Averaging the previous two halvings, he said, that would occur in 446 days—roughly 15 months. 

“I realize that price may sound ludicrous to some today,” said Morehead. “But, $5,000 sounded equally ludicrous as our first written price forecast when we launched Pantera Bitcoin Fund at $65/BTC. Mark Twain is often attributed with the saying, ‘History doesn’t repeat, but it often rhymes.’ Just sayin’ that there’s more than a 50–50 chance bitcoin goes up—and goes up big.”

Shock the world

A lot of cryptocurrency investors are betting on it. Bitcoin, after all, has long been touted as a hedge, uncoupled from broader market risks.

And those risks are pretty risky right now. Unemployment is at 14.7%, with 33 million Americans having lost their jobs since the coronavirus pandemic shutdown. As a result, the Federal Reserve printed $3 trillion in just the first quarter of the year.

In an interview with CNBC last week, Galaxy Digital CEO Mike Novogratz pointed out that while the Federal Reserve is printing money as fast as it can and predicted 20%-25% deficits are coming, “we have the Bitcoin halving where the inflation rate gets cut in half. It’s a big deal.”

Bitcoin bull and Morgan Creek Digital Assets co-founder Anthony Pompliano said much the same thing in a May 7 tweet. “We are in an economic crisis and Bitcoin is drastically outperforming every asset,” he said. “It is literally serving as the strongest safe haven. The people are waking up to the game. They are choosing to protect themselves.”

Pompliano added, “Even Paul Tudor Jones is a Bitcoiner now,” referring to the legendary macro investor who is founder and chief investment officer of Tudor Investment Corp.

In a market outlook note titled “The Great Monetary Inflation” on May 7, Jones announced that his Tudor BVI fund is going to begin trading bitcoin futures. If he was “forced to forecast” the best performing asset, Jones said, “my bet is it will be bitcoin.”

Can halving threepeat?

None of which means you are guaranteed to get rich by betting on this halving. 

A 14% drop in the price of bitcoin in just 15 minutes on May 9 caused nearly $300 million in long positions—bets the price would rise—to be liquidated on the BitMEX cryptocurrency exchange alone. 

More broadly, the hype around the idea of the halving will cause a big price jump every four years is based on the idea that it was programmed into Bitcoin’s code by Nakamoto.

That “implies that billion-, if not trillion-dollar bull runs can be engineered through the design of an issuance schedule,” said Ryan Watkins, a research analyst at cryptocurrency research firm Messari, in a May report about the halving. 

Calling the concept “great marketing [with] pseudo-science fundamentals,” Watkins argued, “[a]t best, the halving is a once in every four years marketing event where Bitcoin reminds the world of its superior properties as a monetary good. What makes this years’ event so special is that Bitcoin is now part of mainstream consciousness.”

He added that the economic cliff the world is careening towards, and the resulting inflationary printing of fiat money at a fabulous pace, does mean “that the current macro environment is prime for Bitcoin.”

That said, Watkins added that he is not optimistic that bitcoin’s current halving will be a threepeat.  

“The force of Bitcoin’s prime marketing event is colliding with the opposing force of an incredibly uncertain macroeconomic environment that continues to be an overhang on every asset class,” he said. “It’s unclear which force will win out, but to date Bitcoin has yet to convincingly decouple from broader financial markets.”

Bulls breakaway

In that report, Messari CEO Ryan Selkis pointed to three trends supporting a coming bull run.

The first is what he called the “digital gold” narrative tied to the third halving. It dropped bitcoin’s “monetary expansion rate below the Fed’s 2% inflation target for the first time ever,” he said. That makes the third Bitcoin halving “a turning point that marks bitcoin’s evolution from beta to production as bona fide digital gold,” Selkis argued.

Beyond that, he added, the entrance of large institutional investors with far more money to invest, and the momentum of the halving itself—which he called “a crypto super cycle marketing event”—will keep the bulls running. 

“Fiat holds value by decree. Bitcoin holds value by design,” Diogo Monica, president of crypto custody firm Anchorage, told Modern Consensus via email. “With the halving happening amidst a flood of central bank money printing, it will be fascinating to see how the markets value inherently scarce resources like Bitcoin.”

In point of fact, while Bitcoin’s price collapsed with the Black Thursday market crash, it has rebounded faster than any other asset.

In an April 29 tweet, Morehead pointed out that “Bitcoin was born in a financial crisis.” That was the subprime mortgage crisis of 2007-2008. Bitcoin’s genesis block was mined on Jan. 3, 2009.

He added, “It will come of age in this one.”

Updated at 12:50 a.m. on May 12, 2020 with Diogo Monica quote.