Bitcoin, the world's most prominent cryptocurrency, has attracted a great deal of attention due to its extreme price fluctuations, presenting investors with both great risks and potential rewards. However, two things are certain in the world of cryptocurrencies. That is, the halving is bullish, and the crypto winter will come after the halving.
To better understand these terms, a “halving” in the Bitcoin ecosystem is a pre-programmed event that reduces the rate at which new Bitcoins are created or mined by half. This event has historically been viewed as bullish for long-term holders, with Coingecko reporting that within a year after each halving, he saw a 3,230% increase in value (yay). However, shortly after this spike, the price of Bitcoin typically experiences a significant downward correction, with prices declining by more than 80% on average, entering a period often referred to as the cryptocurrency winter (it hurts).
The Bitcoin network goes through this halving event approximately every four years, which is a mechanism to control inflation rates and maintain scarcity over time. The most recent halving took place on May 11, 2020, when the block reward for Bitcoin miners decreased from 12.5 BTC to 6.25 BTC. At the next halving, the mining reward will drop to 3.123 BTC.
Typically, halving hype lasts for about a year, with a significant correction tending to occur the following year. The first halving occurred on November 28, 2012, and by November 2013 Bitcoin experienced a significant decline, plummeting from $1,130 to $170 within the same year (an astonishing 85%). decline). The second halving in July 2016 followed a similar trajectory, with Bitcoin reaching $20,000 in November 2017 but crashing to $3,191 in the following months, an 84% decline. Most recently, the third halving in May 2020 caused Bitcoin to rise to an all-time high of $68,789 in November 2021, before falling to $15,600 by June 2022. This resulted in an adjustment of 77%.
Why will Bitcoin crash after the halving?
Several events have affected Bitcoin's price performance on a fundamental level, including the launch of Bitcoin futures contracts, China's crackdown on the cryptocurrency industry, and even Tesla's tweet about ditching Bitcoin. But unlike these one-time events, Bitcoin halvings are scheduled on a regular basis.
One potential reason behind the post-halving crash is profit-taking by investors who held positions for a long time, often motivated by the “January effect.”
Investors believe that stock prices tend to rise in the first months of the year due to increased buying activity after December's sell-off. This is often attributed to loss harvesting, where investors sell loss-making stocks in December to offset their capital gains tax liability and then buy them back in January, driving up demand and prices. I am.
Investors may be considering rebalancing their portfolios by selling risky assets such as Bitcoin in December and reinvesting in stocks in January, traditionally a bullish month for stocks. There is a possibility that there are.
Another important factor is the “mine surrender” phenomenon.
During profitable seasons, miners accumulate Bitcoins and increase the hashrate of the network. However, there comes a time when miners need to sell their holdings and purchase upgrades or additional equipment in order to remain competitive or increase profitability as the network strengthens. Although not necessarily consistent with price performance, this selling pressure, combined with other bearish market sentiment, can cause a snowball effect, leading to mine shutdowns and subsequent price collapses. When this happens, miners sell reserves and equipment to stay operational, not to stay competitive.
According to data from Bitinfocharts, Bitcoin's hashrate has declined during the past two halvings.
Despite these periodic corrections, Bitcoin has consistently demonstrated its resilience and ability to recover from significant drawdowns.
How will Bitcoin traders cope?
Michael Saylor, founder and chairman of MicroStrategy, perhaps the most prominent Bitcoiner on all of Wall Street, said in a 2022 interview with Emily Chang on Bloomberg's Studio 1.0 that “If you invest in Bitcoin, The short term is four years.” Year, [medium] The time axis is 10 years. The appropriate period is forever. Saylor argues that Bitcoin is a good investment for those who want to hold it at least from one halving to the next.
“If you look at four years, not a single person has held Bitcoin for four years and lost money,” he said.
Similarly, Bitcoin's super bullish period followed by a huge crash followed by a bullish period suggests it is not a speculative bubble. Rather, it is a volatile asset class that is slowly gaining acceptance into the mainstream. In other words, these big corrections are relatively healthy for Bitcoin as they balance investor mood and avoid a bubble-like scenario where the price crashes to complete futility.
Now, while historically the end of the year after each halving is known to be the start of crypto winter, looking at the shorter term, September is a particularly bearish month for Bitcoin.
This weakness in September coincides with a similar weakness in the stock market, with the S&P 500 index experiencing an average decline of 0.7% in September over the past 25 years, long before Bitcoin existed. The “September effect'' is believed to be due to investors returning from summer vacation and exiting market positions to lock in profits and tax losses towards the end of the year.
Therefore, investors may want to avoid purchasing BTC during the halving in September of the same year or around Christmas.
As Bitcoin approaches its fourth halving, with the price recently regaining $71,000, investors and enthusiasts are eagerly anticipating the potential impact. History suggests that a post-halving correction could be looming next year, but today's situation is unlike anything that has affected Bitcoin as an asset in the past. Regulations are clearer, Wall Street is pouring billions into Bitcoin ETFs, countries are investing in Bitcoin, and the network is stronger than ever.
Wall Street traders tend to say that time in the market trumps market timing. But for the Bitcoin community, HODL is a way of life. It's up to you to decide when to buy, but whatever decision you make, be quick. The half-life is just two weeks away.
Edited by Stacey Elliott.
