Bitcoin cycles depend on halving – this is one of the truths revealed to cryptocurrency fans. However, a well-known Polish analyst believes that it is different and that what was happening on the market was simply misinterpreted.
Bitcoin cycles
Bitcoin cycles depend on when the halving occurs and end at the right moment – several hundred days after the prize distribution takes place in the Bitcoin network. This is what many analysts say. But the truth may be different.
Halving is a process embedded in the Bitcoin protocol (as a network), which involves cyclically halving the reward for miners for mining a new block in the network. It takes place approximately every four years (every 210,000 blocks to be precise) and aims to control the supply of new bitcoins until a maximum of 21 million coins is reached.
So many certainties. Now here’s a theory that has been very popular over the years. Historically, halvings have a significant impact on the price of bitcoin – each of the three such events to date (in 2012, 2016 and 2020) was followed by periods of strong increases in the value of this cryptocurrency. This was mainly due to the mechanism of limiting supply with constant or growing demand, which in economic terms favors price increases.
This all sounds logical, but the price could have been driven by another factor.
Monetary policy!
Daniel Kostecki, a well-known analyst, claims that the BTC rate has been rising for years for other reasons. This is about monetary policy:
Regarding halving, the situation is that in the analyzed period, bitcoin’s halving has always occurred in the cycle of loosening financial conditions, never (at least yet) in the period of tightening.
As a result, the supply shock of halving strengthens the price increase amidst the flood of liquidity resulting from the loosening of financial conditions. However, it should be noted that the beginning and end of a bull market always come from changes in financial conditions.
It’s just that for now, in this small sample, things have been so good in the economy that a similar time has passed between halving and financial recovery ;).
If halving ever occurs during the tightening cycle, the effect will probably be non-existent.
We can agree that halving accelerates the price, but there must be an appropriate environment for this, but it is not the magical number of days after halving that ends the cycle, but the change in macro fundamentals.
This would mean that the bitcoin price is more dependent on what central banks (especially the Fed) do and less on halving. This, in turn, may mean that this cycle is not so much different, but simply shows us the true nature of cryptocurrencies. These became more expensive in an environment of low interest rates: hence the disappointing growth of altcoins. Now the Fed is returning to cuts, and Jerome Powell announced a slow end to quantitative tightening, which should “settle” altcoins, extend the cycle and make us see an altcoin season.
From the Fed Watch Tool we learn that by the end of the year we will receive two cuts with a total scale of 50 bp. Powell’s successor, appointed by Donald Trump, will continue the reductions. This (or the mere hope of it) should fuel further waves of growth. As long as the theory presented in this article is accurate.
