Thriller Insights - S3EP22: Ultimate Bitcoin Halving Analysis

  
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The third halving event in Bitcoin’s history is approaching. A halving in Bitcoin is when the number of new bitcoin created roughly every ten minutes is cut in half. This change in the Bitcoin issuance rate is scheduled to take place every 210,000 blocks (around every four years).

After hitting a 2020 high of over $10K in mid-February, the bitcoin price was lower than $5K a month later. Since then its been an uphill climb, the price of bitcoin has recovered somewhat to around $7.8K. Since ‘Black Thursday’ (March 12), bitcoin prices have gained 103% since then rising from $3.8K to $7.8K per bitcoin. 

Miners

Hash Rate increasing 12 Days out…

Miners, miners, miners…we have to remember the halving cleanses the removal of inefficient miners. We have to understand why this is important and related to bitcoin price. First the bitcoin rewards get allocated to the very efficient miners — the people that have deployed correctly relative to low [cost] electricity. Ultimately we want bitcoin in the hands of these types of miners because they do not have to sell as much bitcoin. Most if not all miners will operate at a loss after the halving, which creates even more sell pressure because everything they are mining is going to get sold. The very efficient miners have better margins, they don’t have to sell as much bitcoin, because they have prepared for this adjustment. This could take 2-4 months for inefficient miners to get removed from the network.

The question to ask is. “Have the miners priced in the halving?” This is the most important question when predicating price going into the halving. Which is also related to the downward bitcoin price movement?

Currency Wars

Money Printer go burrrr…

Adjusting the money supply in line with demand is one of the primary functions of FED and central banks. The most important rule of the game is to avoid a deflationary environment, most people expect tomorrow’s dollar to be very stable. We know Fiat currencies tend to be inflationary by their nature.

The importance of dynamic money supply was learned the hard way in 1929 when the FED failed to tackle a deflationary dollar. As the dollar deflated, the purchasing power of each dollar increased. People chose to save rather than spend. The velocity of money dropped, the economy contracted and the worst recession of the century followed.

It is safe to acknowledge that fiat currencies are great for day-to-day transactions for now. They are fine for short term savings for now. They are convenient for rainy-day funds…not anymore they have become terrible as savings instruments.

Remember Bitcoin is not a fiat currency and it is certainly not responsible for keeping liquidity within an economy. Bitcoin is a disinflationary asset with a fixed and transparent supply schedule. Don’t save in fiat. Save in Bitcoin.

Bullish Factors going into the halving

  • The drop…to 6 bitcoin is far more vital this halving than most people understand.

  • Consensus 2020, Ethereal 2020, Virtual Blockchain Week.

  • More Stimulus Checks? Possibly and if so more will enter Bitcoin.

  • Unforeseen Major FinTech Announcements.

  • Buy-side pressure overtakes Sell-side pressure.

Bearish Factors going into the halving

  • Covid-19, Lock-down.

  • Massive layoffs, Unemployment, No excess fiat.

  • Signs of a Great Depression in play?

  • The unexpectedness of 2020? We do not know what is around the corner economically especially this year.

Bitcoin

We need to discuss PlanB because he is releasing a variation on the Bitcoin stock-to-flow model. This new model, known as the “S2FX”, model. PlanB’s S2FX model combines the valuation of Bitcoin with assets such as gold and silver.

PlanB has come to the conclusion that bitcoin as an asset is going through a series of “phase transitions”.

These BTC narratives seem very continuous in the S2FX chart. However, if we combine the narratives with financial milestones (S2FX and price data), they look very much like phases with more abrupt transitions:

  1. “Proof of concept” -> after Bitcoin white paper

  2. “Payments” -> after USD parity (1BTC = $1)

  3. “E-Gold” -> after 1st halving, almost gold parity (1BTC = 1 ounce of gold)

  4. “Financial asset” -> after 2nd halving ($1Billion transactions per day milestone, legal clarity in Japan and Australia, futures markets at CME and Bakkt)

This following S2FX chart shows that each new phase for Bitcoin brings a substantial uptick in bitcoin valuation with it. With a traditional S2F, PlanB previously said bitcoin was on course for a $100K valuation.

But now according to PlanB, the S2FX model forecasts that the average bitcoin price in 2020 to 2024 will be $288,000. This is in stark contrast to the current bitcoin price of $7.7K but is coming from one of the most important macro investors in this space.

2012 Halving

The 2012 block halving was the first halving and happened on November 28th, 2012.

  • New BTC Per Block Before: 50 BTC per block

  • New BTC Per Block After: 25 BTC per block

  • Price on Halving Day: $12.35

  • Price 150 Days Later: $127.00

2016 Halving

The second halving occurred on July 9th, 2016.

  • New BTC Per Block Before: 25 BTC per block

  • New BTC Per Block After: 12.5 BTC per block

  • Price on Halving Day: $650.63

  • Price 150 Days Later: $758.81

The “Willy Woo” Litecoin Scenario

LTC underwent its own halving event on the 5th of August 2019. As a result, the price of Litecoin peaked around 22nd June 2019, at a value of $146. Immediately after that, Litecoin underwent a 6-month correction that saw the value of LTC drop to $35 before a relief rally early this year to a value of $84 around mid-February.

Bitcoin this month, has a death cross on the daily chart. Further using the Litecoin model before the LTC halving, we can conclude that BTC experienced its own local top before halving around $10.5K in mid-February 2020.

If we follow the Litecoin pattern from 2019, bitcoin might experience a 6-month bearish environment until mid-August. Further using the LTC top of $146 and bottom of $35 in December 2019 to create a bearish predictive ratio (146/35), estimate that bitcoin should find a bottom around the $2.5K area using the top of $10.5K. 

My Perspective on the 3rd Halving…

50% - Likely Scenario 1

Pump into the halving from now into May 12-16 we get back to $12K - $13K bitcoin. We then dump and fall back down to the $7.8K - $9.2K range as miners adjust to price post halving.

Expect a huge surge in demand for bitcoin & ethereum over the next few weeks as Bitcoin’s inflation slows down with the block halving going down to 6. This plays a far bigger impact this time around then previous halvings. We are in one of the most important halvings for Bitcoin.

Governments continue to inflate currencies to mitigate the economic impact of the global Covid-19 pandemic. As a greater amount of fiat money chases a limited amount of goods and services, a significant increase in inflation is inevitable, which will cause prudent investors to turn to bitcoin as a safe haven to preserve their purchasing power.

This idea that bitcoin will pump and alts won't keep up for a while and then BOOM alts have their run as bitcoin starts a larger consolidation.

On both prior halving occasions, bitcoin surged to a new all-time high within 12 months..keep that in mind. From a fundamental standpoint, it will take time to see the actual ‘real’ effects in the bitcoin & crypto markets.

Post 2020 Halving…

  • Libra Launch

  • Bakkt Phase 2 Roll-out

  • Ethereum 2.0 Launch

  • CBDC’s release to the public

  • China Digital Yuan Release

50% - Likely Scenario 2

Dump before the halving from May 1st-5th back to $6.5K We then go into the halving peaking at $9.4K after the dump and fall back down to the $5.8K - $7.2K range as miners adjust to price post halving.

As you see from the start until the first peak Bitcoin took roughly 330 days (or 47 bars on the 1W time-frame) to get there.

The 2nd Cycle duration from the Bottom to Top was roughly 740 days (106 bars), more or less two times the first Cycle.


The 3rd Cycle was 1065 days (152 bars) which is roughly the 2nd Cycle duration (740 days) + the 1st (330 days).


Based on that (rough) progression, we can assume that the current Cycle will be the 3rd Cycle duration + the 1st: 1065 days + 330 days = 1395 (roughly 1400).

Next is to apply the Fibonacci Channel on the time-scale. In doing so the full cycle duration (i.e. from the previous Top until the new Top as projected by the calculations above).

We clearly see that bitcoin is right before the 0.382 Time Fib. During the previous 2 Cycles, when the price was about to enter this Fibonacci level, a pull back to the nearest Price Fib took place.

In January 2016, the price was around the 0.5 Price Fib so it pulled back to the nearest 0.382. In August 2012 (which was a match shorter Cycle, keep that in mind) the price was around the 0.618 Price Fib so it pulled back to the nearest 0.5.

Right now the price is near the 0.5 Price Fib as it was during the previous Cycle. It makes a whole lot of sense (that since it is close to entering the 0.382 Time Fib) to pull back to the closest Price Fib = 0.382 which is roughly $6.5K.


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