The halving narrative appears to be the only thing left to look forward to for bitcoin in the short term. At the moment there is little else driving BTC fundamentally, and sentiment has turned bearish again as the asset starts to slide. Simple economic models and mathematics show that it could all change in six months’ time.
Bitcoin Inflation Below 2%
All hopes of a ‘Santa rally’ appear to be diminishing as BTC prices continue to slide and sentiment grows increasingly bearish. New options contracts from Bakkt and CME a month later are not bullish as they provide institutional investors with the ability to short the asset further.
The only thing that could drive sentiment and bitcoin prices in the next six months is the halving. According to the countdown, this is likely to occur on or around May 15 when block rewards are reduced from 12.5 to 6.25 BTC. Fewer coins will be added to the total supply which increases the notion of scarcity.
At the moment, there are about 295,000 bitcoins to be mined before the next halving. At today’s prices, that equates to around $2.15 billion, or just 1.6% of its market capitalization.
A more pertinent concept is that its inflationary rate will fall below that currently used by central banks. At the moment, BTC has a 3.7% inflation rate per annum. After the halving, this will drop to 1.8% which is below the 2% target rate set by the US Federal Reserve.
Industry observer ‘Rhythm Trader’ noted the significance of the halving;
Even if it doesn’t move the price, it’s a historic event in money. Bitcoin will drop below gold’s ~2% yearly supply rate increase and below the target inflation rate of central banks.
In less than half a year, bitcoin's supply rate increase will be cut in half.
Even if it doesn't move the price, it's a historic event in money.
Bitcoin will drop below golds ~2% yearly supply rate increase and below the target inflation rate of central banks.
— Rhythm (@Rhythmtrader) December 2, 2019
Stock to Flow Model
Stock to flow is defined as a relationship between production and current stock that is out there. After the halving, this will double which is very important for investors in terms of unforgeable scarcity and an inability to inflate stock;
#Bitcoin halving .. 5 months to go 🚀
For miners: production cost of 1 btc will double
For investors: stock-to-flow (unforgeable scarcity, inability to inflate stock) will double pic.twitter.com/JWNbJyil4a
— PlanB (@100trillionUSD) December 1, 2019
Analyst ‘PlanB’ has refuted that the current situation in the run-up to Bitcoin halving is bearish adding;
IMO the run-up is not bearish at all, we are close to the S2F model value, like last 2 halvings. The only thing that surprises me is why we don’t see front running.
With less than six months to go there could well be a final shake out to around $6k before any pre-halving momentum. The long term charts for the next decade, which include another halving in 2024, are all extremely bullish regardless of what is happening today.
Day traders will always be looking for short term gains but anyone in crypto for the long run would do well to forget about the micro pumps and dumps and focus on the macro situation.
Will bitcoin surge before May 2020? Add your thoughts below.
Images via Shutterstock, Twitter @100TrillionUSD @RhythmTrader