There had been a lot of talk about “The Halving” or sometime (incorrectly) referred to as “the halvening”. Obviously, as we get closer to the date, roughly 12 May, the topic has had a wave of speculation-fueled analysis weighing in.
The Halving is the day every 4 years on which the block reward miners receive for successfully processing a block is halved; The block reward started at 50BTC and was reduced to 25BTC at the first halving, then to 12.5BTC the following halving and now will be reduced once more to 6.25BTC.
TradingShot posted an interesting chart on TradingView.com which shows what has historically happened with the halving and what I believe will continue to happen.
The main argument as to why this is priced in seems to be a strong belief that today’s bitcoin hodler are “more sophisticated” and as such, since they are anticipating the value to go up, they have priced that into their bids causing natural forces to price in this common news. That knowledge amplified by the widespread use of derivatives nowadays which simply enhances price discovery and reduces the effects of supply/demand forces of an underlying asset on price seems to have convinced many that price is definitely priced in.
While one cannot argue with this as it is theoretically correct; In practice, knowledge of a piece of information does not necessarily mean it will be reflected in price nor does the power of derivatives completely negate this. Let’s take something simple; The stock market is filled with sophisticated investors yet while most know that apple shares tend to increase in price every September following the Apple Product Release event this does not get priced in and stop the share price gaining value. The reason: there is more demand for apple products around that time.
The Crypto Narrative
In our world, people believe one should always buy the rumour and sell the news. But in reality, “the halving’ is not just another piece of news. When the halving happens the actual supply of bitcoin being produced actually drops while the demand, even if it were not to increase, stays the same, and through simple maths it is easy to see if supply drops and all other factors remain constant the price has to increase. We may think that we speculate to the effect the reduction in supply has but there is no way we could actually completely price it in.
The demand for bitcoin is stronger than ever and everyday adoption seems to be growing, derivatives are allowing people to speculate on price but this does not in any way mean the demand for the underlying asset is being reduced as that is also growing every day. I am not even going to discuss historical data as many will argue it is not relevant, but we all know if history has taught us one thing it’s that history always repeats itself.