Halving Doubts

Halving Doubts

Disclaimer: Your capital is at risk. This is not investment advice.

ByteFolio Issue 104;

Bitcoin’s 840,000th block passed without incident. The new block reward is 3.125 BTC, which has dropped from 6.25 BTC last cycle, 12.5 BTC pre-2020, 25 BTC pre-2016, and 50 BTC pre-2012. They don’t pay the miners like they used to. As for price, we have always seen a post-halving rally, but last time, it took around five months, and the time before, three months. In any event, the big break came in October.

Bitcoin Halving Cycles

Source: Bloomberg

On the face of it, the miners will see their revenues halve, except that fees will increase as a partial offset; we just don’t yet know by how much. The bullish thesis is that there will be less bitcoin for the miners to sell, which is true. But we mustn’t forget that anyone can sell bitcoin, not just the miners, and so the price is perfectly capable of collapsing regardless of the miners’ actions. Yet we rightly assume that the Bitcoin Network continues to make steady progress over time, i.e. it grows. If that’s the case, the miners are the only leakage within the system, and that selling pressure has been significantly reduced. This means that provided the network grows, the price can only rise.

But it is important to understand that as the price rises, so does the miners’ revenue. To see a 10x Bitcoin price means 5x miners’ revenues post-halving, which is around $125 billion of annual revenue. That would require wholly unrealistic inflows to sustain. What makes it even more unlikely is that the total miners’ revenues since 2009 amount to $64 billion. I don’t think many Bitcoiners realise this.

Bitcoin Miners Total Annual Revenue ($bn)

Source: ByteTree, Coin Metrics

Bitcoin will achieve high prices, but it will take much longer than the bulls currently expect. Strong flows will accelerate this, and so the single most important potential development would come from mainstream portfolio allocation.

If we have to wait until October for a new Bitcoin breakout, maybe that’ll finally provide a window for a long overdue Altcoin rally. Recent price action has been tough, but we still favour our leading positions.