Bitcoin halving was on the 11th of May 2020. What are the impacts of this halving on the Bitcoin price and Crypto markets? The first comments are always that Bitcoin halving means less new supply for the Bitcoin. This would then automatically translate into a higher price of the Bitcoin.
Following key questions are analyzed in this article:
- How will Bitcoin halving impact the Bitcoin price?
- What will be the impact on the crypto markets?
- Are there some factors in the current economic environment, which influence the Bitcoin Price?
This topic is analyzed in the following way:
- First, you can watch the webinar presentation
- After that, the analysis of the Bitcoin halving and the impact of the Bitcoin halving the crypto markets will follow
Recording of the Webinar
What is Bitcoin halving?
Bitcoins are created by the miners, who receive them as rewards for maintaining the network. The only way to create the Bitcoins is via the mining, there is no other way to create the Bitcoins. Bitcoins are created every 10 minutes (that’s called a block) and assigned to one of the miners. After the last halving on the 11th of May, it’s 6.25 Bitcoins per block.
The Bitcoin creation rate was:
- initially 50 Bitcoin’s per block
- Then it was 25 Bitcoin’s per block
- After that, it was reduced to 12.5 Bitcoin’s per block
- And now it’s 6.25 Bitcoin per block
The Bitcoin price and the Bitcoin halving’s are described on the following chart:
Bitcoin halving occurs every 210’000 blocks. The following chart describes the total number of Bitcoins and monetary inflation, which is defined as the number of Bitcoins created divided per year divided by the total number of Bitcoins in existence. The last Bitcoin halving on the 11th of May 2020 was not the last one – there will be many more to follow. The result of this upcoming halvings is declining Bitcoin’s monetary inflation, which means declining additional supply of the Bitcoins.
Declining supply means the increasing price of the asset – when the demand is constant, but the additional supply shrink, then this leads to the price increase. However, the demand is not constant, the demand is growing – we look for the respective reasons later in this article.
How does Bitcoin halving impact the Bitcoin price?
The best model to describe the Bitcoin price dependency from the halving is the stock to flow model developed by the twitter user @100trillionUSD. The model is based on the observation that the total Bitcoin market capitalization has a very strong correlation between the Bitcoin’s stock to flow ratio.
Stock to flow indicates is the ratio of the yearly production of the asset to the total amount of the asset. For example, golf has stock to flow ratio of 62. This means one needs 62 years to mine the same amount of gold, as it exists today. Silver has stock to flow ratio of 22 – it would take 22 years to produce the same amount of silver, as it exists today. The intuitive correlation is that the higher the stock to flow ratio of an asset, the higher the price of the asset.
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Bitcoin had before halving the stock to flow ratio of 25 and after the halving, it’s 50. The relationship between the market capitalization and the stock to flow in the past and the forecast is described in the following chart. Both axes are logarithmic. The R2 (coefficient of determination) of this correlation is 95%. Please note, this chart was created before the halving of the 11th of May.
This model confirms the intuitive hypothesis that the higher the scarcity of an asset, the higher the resulting price of the asset. Bitcoin scarcity will increase after every 210’000 blocks. This implies a continuous increase in the Bitcoin valuation.
How does Bitcoin halving impact the crypto markets?
Let’s look at first at the short term picture of the relative market capitalization (Source: https://coin360.com/ ). The Bitcoin dominance of the total crypto market cap is 66%.
When Bitcoin is the main driver of the crypto market. When the increasing scarcity results in the increasing Bitcoin price, then this will translate into the all crypto ecosystem.
The long term view of Bitcoin dominance (source: https://coinmarketcap.com/charts/) is the following. There are ups and downs, but Bitcoin is and remains the key determinant of the crypto market:
Which other economic factors influence the Bitcoin price?
The scarcity model / the halving model does not relate to the general Bitcoin demand. It is our thesis, that the current macro-economic environment will increase the demand after Bitcoin even more. Why is it so? It’s because the demand after the non-manipulatable safe-haven assets will grow.
Here is the Federal Reserve Balance Sheet with the total assets since the inception. The last 2 months mark the increase from the 4.5 trillion USD to the 6.93 trillion USD (more than 50%). The next money printing of 4 trillion USD has been announced already…
This means the debasement of the existing fiat currencies. These are significant debasements, which will lead to the shockwaves through the worldwide economy. On top of this – most of the economies have introduced their massive fiscal stimulus programs. We have analyzed this situation in the article Coronavirus and Bitcoin Price – What’s next? and Coronavirus Economic Crisis – Where to invest now? We have analyzed this situation in our webinars too – see the links at the beginning of this article.
Our key thesis is the following roadmap for the upcoming months:
The economy will run through the following phases:
- Declining Revenues of the companies
- Failures of the “zombie companies”
- Bank Failures
- Monetary reset
The developing economic crisis will increase awareness about how the monetary systems work. This will translate into the increasing demand for Bitcoin and Gold.
Bitcoin price can be forecasted with the Bitcoin stock to flow (scarcity model). However, it’s not only the scarcity, which will drive the Bitcoin price. It’s the general demand for the non-manipulatable assets; for the safe-haven assets – which will grow significantly in the upcoming months.
From one side the scarcity of the Bitcoin will continuously increase. From the other side, the demand after the Bitcoin will continuously increase because of the macro-economic environment. This will result in a massive price appreciation of Bitcoin and other crypto-assets.
Our Webinar Series
We started with the regular webinar series with the focus on the blockchain, crypto lending, and coronavirus economic crisis.
- The first webinar – on the 29th of March – was on the topic “Coronavirus and Bitcoin price – What’s next” (only blog article, we did not record it …)
- The second webinar – on 5th of April – was on the topic “Webinar – Coronavirus market crisis – Where to invest 5’000 $“
- The third webinar – on the 12th of April – was on the topic “Webinar – Coronavirus crash versus 2008 financial crash – What is the difference?“
- The fourth webinar – on the 19th of April – was on the topic “Webinar – Why is the central bank interest rate so low and Why is it so high for the SME’s?“
- The fifth webinar – on the 26th of April – was on the topic “Webinar – What will happen to Bitcoin (Looming Financial Crisis) ?“
- The sixth webinar – on the 3rd of May – was on the topic “Webinar – Fiat currency versus Bitcoin. Why Bitcoin’s future is so bright?“
- The seventh webinar – on the 10th of May – was on the topic “Webinar – Are Crypto Lending Platforms Safe?
- The eight webinar – on the 18th of May – is this one here: “Webinar – How will Bitcoin halving impact Bitcoin Price and Crypto Markets?“
For more information check out the related articles from the SmartCredit.io blog:
Top Crypto Lending Platforms for Fixed Income (Guide)
Blockchain-based financial system – Are we ready?
Why Borrowers need Low Collateral Ratio?
Risk analysis of crypto lending platforms
Coronavirus Economic Crisis versus the 2008 financial crisis – Where is the difference?
Coronavirus Economic Crisis – Where to invest now?
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Please note, this is not financial advice. Therefore, you should always consult with your financial advisor before you make investment decisions.