As Bitcoin (BTC) trades just a hair below the $8,000 mark at press time, down from around $10,000 since September 24, cryptocurrency traders are deliberating whether BTC will slump further to the $7,000 range.
Widely-followed crypto analyst Plan₿ points out that traders are closing in on six months before the next Bitcoin halving, an event that will reduce the BTC mining reward by 50%, effectively creating less Bitcoin for each new block.
Plan₿’s stock-to-flow model for charting Bitcoin’s price movements indicates that six months prior to Bitcoin’s halving triggers bullish sentiment. Following the 2012 and 2016 halvings, for example, BTC/USD jumped 140% and 86% respectively.
We are at about 6 months before May 2020 #bitcoin halving.
In 2012 btc jumped from $5 to $12 (2.3x) in those 6 months before the halving. In 2016 btc jumped from $350 to $650 (1.7x). pic.twitter.com/DKSQBOO2TD
— PlanB (@100trillionUSD) October 16, 2019
Right now it takes around 10 minutes to produce or mine a new block of transactions on the Bitcoin network. There are 17,995,362 BTC in circulation and the current block reward is 12.5 BTC.
The next halving will cut the block reward in half to 6.25 BTC, slowing down the new supply and increasing the amount of time it will take for Bitcoin to reach its maximum of 21 million BTC. Since the demand for Bitcoin has risen over time, the restriction on the new supply tends to spark dramatic price surges.
Crypto trader and analyst Rekt Capital notes that the first halving, which took place in late November 2012, was a key catalyst that led to a significant increase in Bitcoin’s price, initiating a bull cycle. In a span of 513 days, BTC jumped from $2.01 to a market cycle top of $270.94.
After peaking at $270.94, the 87-day-long 2013 crypto bear market began as Bitcoin lost 80% of its value from the cycle high.
The second halving, which took place in early July 2016, led to a 12,000% surge from $164 per Bitcoin to nearly $20,000 in 1068 days.
Here are Rekt Capital’s takeaways after comparing the last two halvings.
- Historically, Bitcoin halving has been a catalyst for a new bull market.
- Bitcoin surged between 12,000%-13,000% at the time of each halving.
- Bitcoin took twice as long to experience the same growth during the second halving than it did during the first.
- Most of the exponential growth for Bitcoin due to the halving took place after the actual halving.
During the first halving, the post-halving growth was more than fives times greater than the pre-halving growth. At the time of the second halving, the post-halving growth was more than 10.5 times greater than the pre-halving growth.
Bitcoin set new all-time highs after each of the last two halvings. When comparing price movements from both halvings, we see that when Bitcoin rallies less pre-halving, it surges more post-halving.
However, there’s always been a pre-halving retrace, meaning Bitcoin has dropped significantly after surging.
Although historical price data can help in predicting future movements, no future price action will ever be completely identical to historical data. The only real certainty about the upcoming halving projected for May of 2020, is that it will guarantee Bitcoin’s scarcity.
Rekt Capital writes,
“The exponential appreciation in Bitcoin’s price is a testament to a very important principle in financial markets – scarcity enhances value.”
You can read Rekt’s full guide on the Bitcoin halving event here.