BTC #18: ARE ALL HALVING CYCLES EQUAL?

The halving cycles are associated with price dislocations.  Generally the 18 months after a halving is when it is very bullish to own BTC to capture alpha on its price.  Right now we are six months past that dislocation.  The price movement from Feb to October 2021 is predicted by many models to be staggering.  The stock to flow model is the one most cited on the internet seen below.  

The halving process reduces the future supply of bitcoin by 50% for the next 210,000 blocks, when this process will repeat again. If demand stays constant, and this factor is not already priced into the market value of bitcoin, the value of bitcoin would rise. However, it is increasingly difficult to determine the intrinsic value of bitcoin due to its complexity.

The third halving was marked when the 630,000th block was mined. This bitcoin halving will see the mining reward drop from 12.5 bitcoins per block to 6.25 bitcoins.  At the end of this halving 93.75% of all Bitcoins will be in existence.  Right now 61% of Bitcoin has not moved in over a year.  This tells us in this halving we are in now that supply is being constricted.  

As you can see from the above table, the amount of bitcoin mined and the block reward drops by half at every halving event. By 2032, over 99% of bitcoin will have been mined and it is estimated to take up until 2140 until 100% of the total bitcoin is mined.

The ideal time to be in the BTC market is day 200-400 of the halving cycle.  This is where parabolic growth appears to manifest.  That time frame fluctuated based on some variables.  Currently we are in that phase now in this halving cycle.  This cycle however may not be like any other.  

With halvings investors need to pay attention to key metrics.  The key data points to watch leading up to the halving which include; countdown clocks, the overall hashrate, and the price per BTC and the bitcoin network difficulty rate.   All of these determine when the next halving comes to the market.  Right now that target looks to happen in April of 2024.  

The hash rate for me, reminds me of the metabolic rate of the Bitcoin organism.

Observers can watch BTC’s price using markets.Bitcoin.com, as well as observe BTC’s network hashrate via charts.Bitcoin.com. Both of these resources are updated every day in real-time and people can observe the network difficulty as well. The data and analysis web portal Coin Dance,which covers all three Bitcoin-based branches (BTC, BCH, and BSV), is also a great resource to use if you are watching the network’s activities after the halving.  Glassnode has all of this data as well.  

The first halving, which occurred in November of 2012, saw an increase from about $12 to nearly $1,150 within a year. The second Bitcoin halving occurred in July of 2016. The price at that halving was about $650 and by December 17th, 2017, Bitcoin's price had soared to nearly $20,000. The price then fell over the course of a year from this peak down to around $3,200, a price nearly 400% higher than Its pre-halving price.

The mathematical theory of the halving and the chain reaction that it sets off works something like this:

The reward is halved → half the inflation → lower available supply → higher demand → higher price → miners incentive still remains, regardless of smaller rewards, as the value of Bitcoin is increased In the process.

In the event that a halving does not increase demand and price, then miners would have no incentive as the reward for completing transactions would be smaller and the value of Bitcoin would not be high enough. To prevent this, Bitcoin has a process to change the difficulty it takes to get mining rewards, or, in other words, the difficulty of mining a transaction. In the event that the reward has been halved and the value of Bitcoin has not increased, the difficulty of mining would be reduced to keep miners incentivized. This means that the quantity of Bitcoin released as a reward is still smaller but the difficulty of processing a transaction is reduced.  All of this is built into the code of BTC blockchain.  Satoshi was brilliant.

SUMMARY

The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.  In this Fourth Turning all trust is gone.  We have Biden getting ready to print another 1.9 Trillion dollars.  

The environment is changing now favoring Metcalfe law dynamics.  As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.  This is especially evident with the actions of corporations like Micro$trategy this AM.  

1.  Bitcoin’s price appreciated +9881% overall after Halving #1.

2. Leading up to Halving #2, Bitcoin rallied 383% to reach the pre-Halving top of $794.91.Bitcoin rallied 4080% in 524 days to reach the Market Cycle top of $20,074.

3. After the 2018 Bear Market where price retraced -84.5%, Bitcoin bottomed at $3152, approximately 511 days before Halving #3.  Leading up to Bitcoin’s third Halving, Bitcoin rallied +343% to reach the pre-Halving top of ~$13,900.  Overall, Bitcoin has rallied +805% since its $3152 March 2020 bottom so far, eclipsing the previous All Time High of $20,000 in the process.  Today, on Mardi Gras Day it is at its all time high above 50,000K

Bitcoin’s post-Halving #3 performance confirms an important, historically-recurring tendency across all Halvings:

1. The Bitcoin Halving serves as a major catalyst for new Bitcoin Bull Markets.
2. Several months after each Halving, Bitcoin tends to eclipse its old All Time High, rallying to new, uncharted price levels.
3. Most of the exponential growth in Bitcoin’s price as a result of the Halving tends to occur after the Halving

Let’s now focus specifically on Bitcoin’s performance after Halving #3:

Bitcoin is up +648% since its $8161 price point at the time of Halving #3.  This number is lower than other cycles.  

MY CAVEAT:  Demand is already far surpassing the ability of miners to produce Bitcoin, and demand is rising exponentially. We found this out from the recent GBTC buys.  The likelihood that we are entering a super cycle for the asset class is very likely. The 4 year cycle theory may no longer apply right now.  

What defines a supercycle?   Everything begins to accelerate at an incredible speed for the value of the king of digital currencies.

We must pay tribute to Michael J. Saylor for having had the audacity and intelligence to adopt this strategy since August 2020. He just borrowed another 900 million dollars for 0% interest and plans to buy BTC with it immediately.  What do you think this does to the value here considering how the supply is narrowing?  

Besides, Michael J. Saylor has become a formidable ambassador for Bitcoin. Rather than simply profiting from Bitcoin, Michael J. Saylor has decided to reveal his Bitcoin Playbook to as many people as possible.  This will drive Metcalfe's law in the Bitcoin ecosystem.

At a conference held in early February 2021 by MicroStrategy, Michael J. Saylor has answered the many questions that all the treasuries of major companies are asking themselves now.  Elon Musk already bought 1.5 billion of Bitcoin as a result of Saylor's idea being made public.

If we extrapolate Bitcoin’s post-Halving #1 performance to Bitcoin’s post-Halving #3 performance, Bitcoin could rally anything between +1742% and 2200%.

A +1742% rally after Halving #3 would result in a ~$150,000 Bitcoin.

A +2193% rally after Halving #3 would result in a ~$188,500 Bitcoin.

What if we extrapolated Bitcoin’s post-Halving #2 performance (+4080%) to Bitcoin’s potential post-Halving #3 price appreciation?

A +4080% rally after Halving #3 would result in a ~$342,000 Bitcoin.

This defines what the current super cycle might create for you Treasury.  So if you think it is too early to buy at 51,000 dollars, you are not part of my tribe.  You might be part of their tribe below. 

Bitcoin bottomed 511 days prior to Halving #3.

Should Bitcoin rally for 511 days after Halving #3, that would mean that Bitcoin would peak in early October 2021.  That means the run that is coming from February 2021 until November might blow your mind.  

Once they understand the DNA of Bitcoin they will buy it in droves.  I think that time is upon us. 

• The circadian biology of Bitcoin is found in its hash rate.  A new Bitcoin block is found every 10 minutes, this genetic code enables Bitcoin’s cells to effectively communicate and coordinate with each other despite enormous distances. It is the internal clock that sets the metabolic rate of the Bitcoin organism.  Hashrate has speed up in this cycle becoming an early indicator that this cycle is different.

• The code of life is written into an organism at its inception. Satoshi carefully architected Bitcoin’s DNA, or genetic code, to be the best sound money ever created. We can think of Nakamoto's white paper as Bitcoin’s DNA genetic code.  It represents instructions that have been written to incentivize the organization and coordination of cellular function.  When corporations understand what this code means to value they will act rationally.  

Will you?  

CITES:

https://www.microstrategy.com/en/investor-relations/press/microstrategy-announces-pricing-of-offering-of-convertible-senior-notes_02-17-2021