Experts think you should only buy if you are “handling” for the long haul

Bitcoin’s long-awaited halving is upon us, an event that sees the BTC reward that miners receive for processing transactions on the bitcoin network split for the third time in history. In theory, the value of the most important cryptocurrency should increase after the halving event as it means that new units would be more difficult to produce. That narrative received bull racing support before and after the first two halving events – 2012 and 2016.

Within a year of the first halving, bitcoin has risen more than 90 times from the $ 10 to region peak around $ 1,180. For the second halving, bitcoin climbed to $ 2,800 from around $ 600 in a year before reaching a peak of nearly $ 20,000 in December 2017.

However, the cryptocurrency market has matured significantly since 2012 and 2016. For one thing, bitcoin derivatives, including futures and options, are relatively more predominant these days, allowing for more advanced price discovery among participants in the market. By implication, the narrative of a supply squeeze-driven rally may not unfold as easily, at least not in the short term.

“It’s a very different world in 2020 than the last two halvings, the derivatives market is much bigger and more important,” said Garrick Hileman, head of research at Blockchain.com

“One way I would say the market has changed is that historically the commercial market was more biased towards upside trades because there weren’t many ways to speculate on the price going down, for example, the ability to borrow and sell in the open, “he added. “This is something that now exists through futures and options. So all these products have created a more uniform playing field for people who want to bet on the price going down. “

An example of how a more robust price discovery system can overwhelm the supply and demand narrative is the alleged role played by the introduction of the CBOE and CME bitcoin futures in the sell-off from the bitcoin high of nearly $ 20,000 in the year. 2017. While it has yet to be proven, some believe that the introduction of CBOE and CME futures offered institutional cash flush traders the opportunity to bet against BTC, influencing the behavior of the spot market in the process.

Diego Gutierrez Zaldivar, CEO of IOV Labs, the company behind the bitcoin smart contract platform RSK, argues that the possibility of this dynamic game makes this halving event different from the first two.

“While the reduction in the renewed supply of bitcoin due to the halving introduces the possibility of a sharp increase in the price of BTC,” he said, “it is possible that the smart institutional currency will push prices down in the short term, as it did when. CME and CBOE introduced their futures in December 2017 “.

BTC currently has bearish market sentiment despite the halving

Meanwhile, some bitcoin market data shows that traders have a bearish sentiment regarding the halved event. Hileman stressed the high demand for put options.

“When analyzing options data, it appears the market is putting a premium on contracts that are below current prices,” he said. “The options market seems to suggest that there is more concern about prices moving lower.”

Data on the Bitcoin BTC put-call report from crypto analytics firm Skew echoes this sentiment. As indicated in the graph below, the ratio has gone north. An increase in the put-call ratio suggests that there is a growing demand for put contracts.

Emmanuel Goh, CEO and co-founder of Skew, which recently raised $ 5 million and launched a trading product, explains that the skew of bitcoin options, another metric that tracks the price of options, is also worth monitoring. put versus their call counterparts.

Regarding the half-life, “if options skew is positive over an extended period of time, it indicates more concerns in the market that mining is potentially bad for mining companies and potentially negatively impacting the price of the company. bitcoin, “Goh said.

The BTC skew metric provided by Goh’s company shows a positive trend.

And there may be some real-world evidence that miners aren’t particularly optimistic about short-term post-halving.

CoinShares chief strategy officer Meltem Demirors referred to his company’s observations of miners’ activities in a Zoom call.

“I think miners are trying to opportunistically dump some of their bitcoin inventory to add working capital to their balance sheet,” Demirors said. “We spoke to a number of CoinShares’ broker-dealer side miners who are looking to raise capital to build new facilities, buy new machines and extend their capacity.

“And we have seen many miners engage with our capital market trading desk looking for ways to manage and hedge their risk and block some sort of OPEX and develop a risk-hedged portfolio strategy for the bitcoin they have in their. budget so that they can meet their operating costs and reduce exposure to part of the inevitable volatility that will come to miners around this event. “

SFOX, a Y Combinator-backed digital asset trading platform that provides a single market entry point for institutional participants, has seen similar trends. Some miners are discouraged from holding cryptocurrency to cover their overhead costs, startup growth chief Daniel Kim said.

To contextualize why miners might be more cautious, consider that the bitcoin halving event would typically raise the break-even price for miners.

John Todaro, head of research at institutional trading tools provider Tradeblock, said the break-even price of bitcoin mining will rise by nearly 100% after the 2020 halving, citing internal research.

“We have a current mining breakeven price of between $ 5,000 and $ 6,000 per BTC, but immediately after the halving, assuming the hashrate stays where it is today or even increases a bit, you’ll see the average breakeven jump in mining from about $ 10,000 to $ 13,000 per BTC, “Todaro said. “It is necessary to see the market price of bitcoin exceed those levels or the miners will not be profitable, which could see the hashrate drop as the miners move out of space.”

The upcoming changes to mining operations could spur a short-term bearish narrative based on the story of the mining death spiral. Therefore, this could potentially be the first time in the network that the market price of bitcoin would remain below the mining break-even points for a considerable period of time, Todaro added.

BTC also remains correlated with stocks

There has been extensive media coverage on how the price of bitcoin is closely linked to stocks. Demirors, Kim and Todaro all believe that bitcoin is actually tracking stocks right now and is likely a bigger driving force than the short-term halved event.

Kim’s company, SFOX, recently released a relationship, stating that BTC sustained a “remarkably positive” correlation of 0.40 with the S&P 500, despite the increased focus on the block reward halving event.

Experts have a positive long-term outlook for bitcoin

Given the market’s somewhat docile reaction to the halved event at the moment, it raises the question of whether the event was priced. The answer depends on who you ask. That said, most of the surveyed experts believe that the market has not fully priced in the halving event, with long-term expectations of higher BTC prices.

Based on a positive outlook for the three D’s of exhaustion (cut in supply driven by halving), demand and dollars, CoinShares believes that the market price of BTC will be “materially higher” than current levels in 12-18 months. Demirors added, cautioning that the timing of a sustained bull run will soon hinge on bitcoin decoupling from the macro narrative.

On the qualitative side of things, RSK’s Zaldivar believes the strength of the bitcoin network is underestimated and expects more people to realize this over time.

“Bitcoin is fundamentally strong with unparalleled security thanks to its computing power, financial incentives and network effect, and is the world’s most reliable and scarce digital asset,” added Zaldivar. “With the economic uncertainty we are witnessing today, it wouldn’t be a surprise to see the bitcoin ecosystem grow to attract institutional investors who perceive it as a store of value and a hedge.”

On the demand side, Grayscale Investments, a US-based digital asset manager, reported in the first quarter that it had a record over $ 500 million in new investment from its clients. Michael Sonnenshein, the company’s chief executive, said on a call that his company is discovering that more people are looking to diversify their portfolios to harness the potential of blockchain.

“We are seeing more investors are eager to have some exposure for the first time or to increase their exposure to bitcoin in a world of some economic uncertainty,” Sonnenshein said. “I think there is a large group of investors who are excited about the long-term potential of applications built around the bitcoin climate is payments or leveraging the bitcoin blockchain for cost savings.”