The Bitcoin Halving Event – Part 2
Yesterday I started a two part series on Bitcoin Halving. This is the second part of that series. It will make little sense if you have missed Part 1. Part 1 is available here: https://trybe.one/archives/the-bitcoin-halving-event-part-1/
The Bitcoin Halving Event – Part 2
TRANSACTION FEES:
What happens after the very last Bitcoin has been mined? Will miners stop mining because there are no longer any block rewards? No, they won’t. That is because block rewards are only a part of what miners earn when they mine a BTC block. They also earn transaction fees.At the moment transaction fees are only worth around 10% of the block reward (they are between about 125 and 205 BTC per day), but that figure is climbing rapidly. At their peak during the last bull market, they sustained a value of about 700 BTC/day, with an absolute peak value of 1496 BTC on 22 December 2017. With the bull market starting to pick up again, the value of total transaction fees is climbing substantially from week to week. It is quite possible that we could (and I think will) see daily transaction fees totalling 1000 BTC or more within a few months time. It is not impossible that daily transaction fees will even exceed block rewards by the time that the next halving takes place. Unfortunately I don’t have an open source chart of this to share with you, but you can take a look for yourself at https://www.blockchain.com/charts/transaction-fees?timespan=all. This is just one more reason why halving block rewards will have little effect on the greater Bitcoin economy.
THE PATTERN
“But THE PATTERN Bit Brain, what about THE PATTERN?“
There is no pattern.
I have heard (too) many analysts argue in favour of a four year Bitcoin cycle. That’s funny, because my charts have no record of such a cycle. Do yours?
Here is an unbiased chart showing the history of BTC. Each block shows the time and change of price from the previous halving event to the next bull run peak. If there was a definite pattern here, then the blocks should look the same in both vertical and horizontal extent. They don’t.
Made by Bit Brain with TradingView
The Genesis block position is an approximation which I just eye-balled because the x-axis dates don’t extend back to 3 January 2009
More specifically, we can see that the time from halving events (including the genesis block) to the peaks of market cycles vary wildly. 125 bars after genesis, 17 and 53 bars after halving #1, 74 bars after halving #2. Face facts: there is no four-year pattern. Worse still, there are two major peaks in 2013 alone!
Do you want to know the truth of what is happening here? Let Bit Brain explain:
We have had two halving events so far. Only two. Ask ANY statistician, even a very poor one:
Two is not a representative sample!
Poor analysts take those two samples and massage the hell out of them, in order to fit whichever narrative they are trying to spin. That’s bad analysis, very bad! Worse still, sometimes they only bother using one of the two examples and then they label the second one as “close enough” to the first. That makes my fists itch…
People, please, listen: Even after we have three examples of halving behind us, we would still struggle to reliably determine any sort of pattern or cycle. Such samples sizes are still horribly open to manipulation and misinterpretation. For instance: you can connect any three points on a chart by drawing a circle through them (and thus also an arc), any three points. Apart from how I have shown yesterday that halving does not affect Bitcoin economics perceptibly, Bitcoin is also just too young to determine that sort of pattern. Even if such a pattern does exist (and I say it doesn’t), we don’t have enough data to determine it yet.
BITCOIN MACROECONOMICS
Bitcoin is often said to be deflationary. That is correct. 1 BTC in 2019 buys a lot more than 1 BTC did in 2014, which buys a lot more than 1 BTC did in 2009.
The deflation occurs in spite of the fact that BTC supply is inflationary. Yes, the inflation rate is very low and constantly dropping – especially at halvings – but it is still inflationary. What this means is that:
The increasing supply of BTC is not a major price driver!
Price is determined by supply and demand. The supply of BTC is almost fixed, except for the very tiny increase every day from block rewards. On the other hand, demand is not fixed. Demand is growing very rapidly as more than 7 Billion people realise that there will only ever be a maximum of 21 Million Bitcoins to go around between them. As adoption takes place, so demand grows; outstripping supply to such an extent that the little bit of added block reward BTC becomes lost in the noise.
DEMAND determines the price of BTC – demand relative to an almost fixed supply.
Crypto does have cycles, sure it does, I speak about them all the time. But those are not halving cycles! Those are investor hype cycles – the very same economic cycles which we have been getting in stocks, forex, commodities etc for hundreds of years. Cycles are nothing new!
You know the crypto market cycle, we’ve all seen that “Wall Street Cheat Sheet” chart before. You know the Gartner hype cycle. Those are the cycles we see in crypto – not made up cycles based on a non-event which occurs every four years.
I have observed that some calls can be made using halving predictions, but those calls are not based on the halving prediction themselves. Look at them closely. Calls like: “price will climb 20x from the ATH of one cycle to the next” have nothing to do with the halving events and everything to do with long-term trendlines. They may look like they are related to halving, but they are not. Leave the halving out and they still hold true.
The only thing I expect from halving is the headless chicken mentality of uninformed investors and traders and a resulting increase in volatility. To expect anything else is, to put it plainly, stupid.
I’m not going to say “Do Your Own Research” this time, because nobody else seems capable of doing it correctly when it comes to halving. Instead I am going to say: “Listen to Bit Brain”.
But hey, if you firmly believe that a 0.00005% difference in the daily supply of Bitcoin will have a huge effect on the fundamentals of the market, then you’re free to do so. Just don’t comment on my post – I will subject you to such an online roasting that you will spontaneously combust!
Yours in crypto
Bit Brain
"The secret to success: find out where people are going and get there first"
~ Mark Twain
"Crypto does not require institutional investment to succeed; institutions require crypto investments to remain successful"
~ Bit Brain
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Well, from reading your two-piece critique on the influence of halvings on bitcoin prices, I almost get the impression you have been reading some of my little write-ups. Thank you, I'm honoured.
You are of course correct in pointing out that 2 halvings do not carry any statistical significance. Unfortunately, we don't have the time to wait for 10 or 20 more halvings, assuming the statistical relevance of halvings has then been increased to acceptable levels. Now is the time when you can still buy relatively cheap.
And also on your chart, I see prices starting to rise approximately 1 year before the halving, as they have started rising now, climbing towards the third halving. You can call that a coïncidence, and maybe it is, but maybe it isn't. That the price rises are not completely equal in time and size, so be it.
In addtion, the fact that you are convinced that halvings should have zero impact on price, doesn't mean others don't act on it - illogical as that may be. As an analyst I'm investigating the possibilities of cycles, I try to look for patterns that may become useful. And yes, estimates of future outcomes based on those patterns are then made. That you are not impressed is fine. But that's what you do when analyzing. Simply buying some bitcoin every week/month as long as the price is above the 233 weekly moving average will no doubt be a very profitable strategy and you will not have to think, investigate, analyze anything anymore.
Thanks for the inputs youp. I'm sticking with coincidence and standard market cycles until something beyond pure speculation indicates otherwise. At this stage, no such thing exists.
Kick ass post bitbrain! Yeah, we definitely do not have enough "events" to reliable find a pattern. It's market cycles like anything else, supply and demand.
Thanks SCG!
The overall environment and capital flows are signaling more demand which could influence the demand side of the equation in addition to the adoption curve. I am still not sure if supply is to be totally ignored under those factors; but it seems like price pressure will be higher.
Posted using Partiko iOS
It's not really that supply should be ignored, it's just that for all intents and purposes, it can safely be regarded as "nearly static" due to the low inflation rate.