Pascal Thellman is CMO of Bounty0x, a simple service to earn crypto and a consultant at PolyGrowth, a cryptographic PR company.
The following is an exclusive contribution for the 2018 year of CoinDesk under consideration.
2012 and 2016: what do they both have in common?
Bitcoin has undergone what is called the "halving", in which the annual inflation of bitcoins has been algorithmically reduced by 50%. This is part of bitcoin's deflationary monetary policy and why Austrian economists refer to bitcoin as "hard money".
If you look at the bitcoin price table, you will notice that these two years still have one thing in common. The price of bitcoin has increased significantly in the year before halving. Furthermore, the half-life rally was followed in both cases by a brutal parabolic move only a few weeks after halving.
With the next bit-in half expected for May 2020, it is time for investors to start paying attention to this scheme. Historically, the halving begins to be assessed in about a year before this happens, which would result in a decline in bitcoin at the start of 2019, followed by a rally that will begin in May 2019.
But what if this time is different? It will not be, let's explore why.
Bitcoin, gold and hard money
Gold is the oldest form of existing money.
Unlike ancient money like cattle, shells or salt, it can be said that gold has a hard-coded economic policy: there is a gold stock over, and only a small one part of the gold reserve can be extracted on an annual basis, effectively establishing a cap on its inflation.
Inflation has historically fluctuated between 2% and 3% and the entire world supply of gold can fall within the confines of an Olympic swimming pool, making it a relatively poor asset. Scarcity, combined with a consolidated history and durability, are some of the main factors for which it has become the reserve assets of the world, inflating its market capitalization to $ 7 trillion.
At the time of writing, Bitcoin's inflation rate is ~ 3.8 percent, and will be reduced to 1.8 percent in the third prize which will close in half around May 2020. This will make the bitcoin the first asset at world to become a more difficult form of money than gold, while at the same time improving on all the negative sides of gold, mainly portability, divisibility and verifiability.
The brutal algorithmic deflationary model of bitcoin, along with its other advantages over gold, will begin to turn it into an interesting resource for large institutions and, finally, central banks. As the bitcoin's deflationary curve becomes more aggressive after the halving of 2020, it will inevitably begin to evolve into a resource with all the qualities that large institutions and central banks look for in a reserve resource.
Buy the event
"Buy the item, sell the news & # 39; It is the ten-year wisdom of Wall Street that works on all markets.
A particular event, such as a press conference of a public company, offers speculators a date to speculate on, often driving up prices leading up to the event. After the conclusion of the event, even if the event was positive, the price usually decreases because there are no short-term price catalysts for speculators.
Due to the inefficiency of cryptocurrency markets, this effect can be observed even more strongly in bitcoin and cryptocurrency prices.
A good example of this phenomenon was the launch of bitcoin futures by the CME group. The narrative at the end of 2017 was that the launch of future regulated bitcoins would open the doors to institutional investors and raise the bitcoins to unprecedented highs. This narrative was one of the main catalysts that pushed bitcoins to nearly $ 20,000 at the end of the year.
However, as we know now, the launch of the bitcoin ECM futures on 17 December marked the exact maximum of the bitcoin bubble of 2017.
As the data of the last two bitcoin halved clearly show, the same model "Buy the news, sell the news" can be observed even in the 12 months before the halving. In November 2011, a year before the first halving, the bitcoin started a rally that ended the halving day after a 300 percent price increase.
Then again, in July 2015, a year before the second half, even the bitcoin started a rally that ended the day of halving after a price increase of 178%.
Like it or not, that's how the markets work. Speculators will speculate up to an important date, the same will be true for the third halving bitcoin.
Panic Buy the fundamentals
Currently miners earn 12.5 bitcoins per block or about 1,800 bitcoins per day.
Although some miners hold a portion of their extracted coins, most of them sell their coins immediately at the market price to cover the costs of electricity and to block their profits. After halving in May 2020, miners will only earn 900 bitcoins a day, drastically reducing the daily supply of bitcoins on the market.
Since the diminishing supply meets a constant (or increasing) demand after halving, prices will inevitably increase to find the balance again. The combination of market inefficiency and supply reduction shock is what has caused two of the biggest bitcoin parabolic moves.
After halving the bitcoins of 2012, the market took two months to start feeling the effect of inflation halving and bitcoin to start a parabolic move that pushed its price from $ 12 to $ 142. It is noteworthy that, after the halving of 2016, the market has felt the reduction of inflation even earlier, this time the bitcoins have started a rally that would have led from $ 582 to $ 20,000 just a month. after halving.
With the third halving less than 18 months away, the time has come to start paying attention to the bitcoin killer application: algorithmically applied monetary policy. The disruptive power of this monetary policy will begin to be valued in 2019, and when it does, you will want to be here.
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Bitcoin half-image through Shutterstock