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Bitcoin Halving: Retrospective Market Analysis

08 May 2020


All those conversations about Bitcoin halving are starting to annoy most people in the crypto community, but we just want to summarize the numbers and facts about Bitcoin over the past 8 years. So, let's begin. Firstly, we do not want to repeat that every 210000 blocks the reward is reduced by 50% for a valid and accepted block: all the details can be found on the web or in the Wiki. Secondly, the forecast models based on the fiat price are not ours, especially short-term. Thirdly, this is just an overview, not a thorough study.

By the frequency of requests, we are far from the peak of the end of 2017 - the beginning of 2018, but the news background takes into account the halving factor and tries to disperse it. But where? The fact is that this is already the third halving: it appeared in the world of cryptocurrencies in 2011, and in 2012 at the 50BTC pool it was already collecting the first fruits. Therefore, we will try to look through the prism of a retrospective analysis.

At that time, many bitcoin users set themselves a few simple rules as a principle: to withdraw to more than one account, even if the withdrawal was automatic, and try to change accounts as often as possible. Withdrawals should have been made by iterations of 0.1 BTC or so, therefore, on all accounts, including those that you can find, rummaging, you would not find more than 1 BTC: the risk must always be justified.

The thing, that confuses during the current halving most, is that people are discussing the award split, but at the same time they still mine on NiceHash, save money in pools, do not diversify the assets received, etc. Simply put: over the past 8 years, most miners have become professionals only in hardware and, at best, technology as such, but there are the same problems with financial modeling. And this is the basis of all that verbal hype that takes place here and now, in 2020. As soon as we recognize this, the world will change. Moreover, it was recently discovered that rather large mining farms work not only on outdated software, but using outdated operating system, there was even one on Windows 98. Of course, there are pleasant exceptions in the form of major industry participants, but decentralization is still about something else.

The second point that worries in the era of halving 2020 is that the vast majority of users use the "wallets" of exchanges and similar centralized solutions, first of all, and do not try to understand the simple truth: "my private key = my money ". However, from the positive things, there is the support for BIP formats, when 12-24-etc. words can still be saved after the closure of the resource. For example, a has 12 or 24 words.

Restore empty old account for demo? Quite possible. Get a mobile wallet for quick payments? Yes of course. But storing at least some large amounts in this way is bad manners. Therefore, the first thing you should look at, when experts, including pseudo-experts, discuss halving, whether they have an understanding of technology and security aspects in general. Of course, there will always be someone who does something better than you, knows more and so on, but it's still about the basic level, which, as you see, is worth teaching from school.

That is, the halving itself overshadows the really important questions: let's say, in 2020 we see the same meaningless debate on the topic as in 2018. Therefore, if we summarize:

Knowing all this, let us now try to look at the question more broadly. Firstly, in November 2012 BTC cost around $13 per token and that was not so bad, because back in 2009 it cost about $0.001. Secondly, a year later it cost more than $1000. And it’s not only because of the notorious Mt.Gox, but also because of the fact that in 2012-2013 there was a banking crisis in Cyprus and people were looking for new tools for hedging risks. As it turned out they searched not in vain, after the last 10 years of the FATF operation, offshore companies, especially taking into account the Panama affair, have lost all meaning and cryptocurrency has become a new bastion in protecting not only privacy rights, but also private property, which connects tightly offline and online worlds.

But what happened in 2016? At the time of splitting, the Bitcoin price reached the region somewhere around $650 dollars, and after about a year it has risen to $2500. And then there was a hype and Bitcoin took off to almost $20000. Is that what everyone hopes for today? But let's say what really would be worth hoping for.

The network effect and Metcalf's law are of primary hope. In 2018 alone, the number of verified accounts in different crypto assets has doubled. Based on this, it was concluded that a way out of the “crypto winter” will be found and it will be accompanied by an increase in the interest of different categories of people, which means that a fiat price increase is also possible. So it was: Bitcoin rose from $3200 to about $10300 approximately. But few people today evaluate the growth of users in different projects and assets, respectively: whether it be Cosmos, Ethereum or Bitcoin itself. But far more true predictive scenarios lie in this parameter than in halving. However, it is understandable: the layman is not interested in anything, because he is a constant victim of himself.

Let’s take another parameter - the number of hodls. “The number of addresses with more than 1000 BTC concentrated reached a two-year high.” And here another law comes into force: the proposal becomes limited. Not only because of 21 million BTC, most of which have already been mined, although not all of them are in circulation, but also because hoddlers do not hurry to part with digital gold. And demand is growing, judging by the news of recent months: here the lifting of bans in India and South Korea, and the contributions of $1200 COVID-19 allowances from the Americans, and the entry of Argentines into the cryptocurrency against the background of default in the country, etc. What happens to price with limited supply and unlimited demand?

The only thing that halving affects with this approach is the daily volume of coins mined. Now it is 6*12.5*24=1800. One block is mined 10 minutes on average, which means 6 blocks per hour, 1 block is worth 12.5 BTC, and there are 24 hours in a day, and it will be 900. And here the basic law of mining comes in power - the law of the electric power: now the cheapest and, more importantly, high-quality electricity is in China, where the state is ready to negotiate only with large and very large miners; Canada, where everything is stable and clean in every sense, including legal; Siberia, where it’s difficult, but there are a lot of energy and smart people. Next South America, Chile first, comes and other regions, including even African countries.

And here we get an interesting model: on the one hand, expensive miners are already far from the price of the first video cards in 2012, capital investments in mining infrastructure also look impressive. Government bodies around the world studied this process long and tediously and now hiding from them for the owners of the networks is almost impossible. Cheap electric power is far from a panacea, because safety, equipment, networks are also important, same as the quality of the incoming energy, as well as other factors, like, say, logistics issues. So, it turns out that China can again seize the palm, and with it there will be a new round of hash rate, which will lead to one, but the only possible, solution: Bitcoin’s fiat price increase. Though this is not the best for Bitcoin, miners have chosen this path, along with the hardware manufacturers, more than once.

However, there were other scenarios: for example, when the price fell, and the hash rate grew, this turned off very many minor miners and only reduced competition in the market. Therefore, you need to consider not only 6.25 from the payment, but also the cost of equipment, level of difficulty, face value of electricity, indirect costs, such as logistics, construction and support of infrastructure, etc. Then it’s possible to get a sane script, and it’s harmful to consider only the price: many people mine even at a loss, because they have a sufficient pillow and a well-thought-out investment strategy and / or a spare operating business with operating income, which is also not obvious after the COVID-19, and others work exclusively for the circulation of funds, and this confrontation has been going on for ages.

And yet, all the above issues are secondary, no matter how it seems otherwise. The questions of faith and knowledge are much more important: to believe, based on strict mathematical or logical conclusions, is good and right; to believe simply “because” is often harmful and even funds threatening. According to preliminary estimates, the significance of halving in the possible increase in the fiat expressed price of BTC is from 5 to 10%, while this coefficient is much higher in the drop of complexity. The rest falls on the very network effect that is created due to the arrival of new users / owners; projects, including central exchanges and other similar solutions, adding here platforms for trading futures and derivatives, as well as STO systems, on the development of the projects themselves. If you look closely, the Ethereum ecosystem has done more for the Bitcoin community than it has done itself, because the “middle of exchange BTC function” develops primarily thanks to ERC-20, the formation and evolution of DAO / DeFi, and as well as a gradual increase in Dapp solutions. And therefore, the PoW / PoS transition of Ether is much more important than halving, which can usher in a whole new era. Instead, we have been discussing three things for 8 years in a row: Bitcoin will die; nobody needs Bitcoin; halving will change everything.

Now we are on the verge that BTC is undergoing a new stage of development: in 2009-2010 it was a tool of enthusiasts such as Satoshi or Laszlo; in 2011-2013 the first entrepreneurs came; in 2014-2017, the era of ICO and investors has come. Since 2018, bitcoin has been modified into an asset that has value in itself: 1 BTC costs 1 BTC. Now, when assets are being weaned from small and medium-sized businesses under the guise of a COVID-19 pandemic, this thesis is more or less beginning to reach the masses, but we, people living inside the industry, have undoubted advantages over them. Is it time to take advantage of this?

Do you remember a Liberty Reserve system? It was one of the largest some time ago. But its creators boasted too much: too much dirt was allowed inside their brainchild. Therefore, we would not recommend focusing on what is obvious here and now. The important thing is not that one of the states, Bangladesh or China, will ban cryptocurrencies; and not that halving will obviously change the distribution of forces, but whether we can further develop this system as part of decentralization. This is the value, and then the cost, of the Network: the number of nodes fell in the “crypto winter” to 9 thousand, now it’s a little more than 8000, although it has recently exceeded 10500. We hope we will see growth. The number of wallet applications and sites, as well as the API for business has increased many times, the implementation of blockchain solutions equally grew exponentially, such facts are much more important than halving. If you think otherwise, then try to explain the growth of Bitcoin in the banking crisis in Cyprus, and even more so in the peak of 2017, as well as the recovery after the obvious fall of 2018. Perhaps then there will be no less questions, but more, but they will concern the correct stories.

Author: Kate Solano for С


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