Bitcoin has been revolutionary in many ways. For instance, It is the first decentralized money (that has worked). But arguably most importantly, it is the first digital asset that has immense scarcity enforced by an algorithm.
Every four years, Bitcoin’s block reward gets cut in half in what is known as a “halving” or “halvening”. While many may not believe that this has any significance, many investors have come to know halvings as catalysts for upward explosions in the cryptocurrency market.
Case in point, we reported earlier this year that a poll found that 61% of some 2,500 users believed that BTC will rally into the halving, slated to take place during May 2020, and afterward.
But not everyone is convinced.
Bitcoin Might Not Boom Post-Halving, CEO Argues
Speaking at a recent cryptocurrency mining summit in Germany, Jihan Wu, the co-founder of Bitmain, said that he believes that a Bitcoin bull run may not follow the halving next year.
This comes in spite of the fact that previous bull runs serendipitously lined up with large bouts of Bitcoin price appreciation, which can be seen in the chart below.
Halvening centric perspective on Bitcoin price. H/T @StoicTrader_ & @MLescrauwaet pic.twitter.com/89trRlSOqd
— Tuur Demeester (@TuurDemeester) May 16, 2019
But Wu’s tacit skepticism isn’t unfounded. Strix Levithan, a Seattle-based cryptocurrency startup, found that if you delve into the nitty-gritty statistics, you can find that halvings don’t have a material effect on the markets of cryptocurrencies that have block reward reductions.
Analysis of data on 32 halvings across 24 crypto assets, which includes Bitcoin and Litecoin, suggested that there is no clear evidence that crypto assets that see their emission halve “outperform the broader market in the months leading up to and following a reduction in miner rewards.”
In fact, Strix’s researchers suggest that for Bitcoin in particular, halvings actually act as a negative catalyst leading up to the event, which goes somewhat against the narrative put forth by many on Crypto Twitter.
Strix attributes the hype around these block reward reduction events to “limited sample sizes and historical data.”
Price Model Begs to Differ
Although one of the most important people in Bitcoin mining isn’t 100% sure that the halving will be a benefit to Bitcoin, a much-lauded price model has shown that the inflation reduction will be a massive boon for this budding market.
As reported by Blockonomi previously, Munich-based financial institution Bayerische Landesbank (BayernLB) has predicted that the halving will give Bitcoin to fuel to jet past its previous all-time highs.
In an extensive paper authored by senior analyst Manuel Andersch, it was explained that due to its characteristics and similarities to gold, Bitcoin’s price might be able to be fairly predicted by a stock-to-flow (new yearly supply over above-ground supply of a commodity) model.
The model says that once Bitcoin’s block reward reduction is cut in half next year, the cryptocurrency will have a fair valuation of $90,000 per coin, implying that “the forthcoming halving effect has hardly been priced into the current Bitcoin price of approximately USD 8,000.”
BayernLB’s model was derived from one made by PlanB, a pseudonymous quantitative analyst working at a European financial institution.
PlanB recently determined that the stock-to-flow model is cointegrated with the Bitcoin price, implying that there is a rather high likelihood that BTC will rocket higher in the wake of the halving.
The analyst also found that his model fit Bitcoin’s price action to a 95% R2, a statistical metric used to represent the accuracy of a model (100% is perfect, 0% is absolutely inaccurate).
