The much-anticipated bitcoin halving is upon us, an occasion that sees the BTC reward that miners receive for processing transactions on the bitcoin network share for the third time in history. In theory, the worth of the foremost prominent cryptocurrency should rise following the halving event since it means new units would be harder to supply . That narrative has received support from the bull runs pre and post the primary two halving events — 2012 and 2016.

Within a year after the primary halving, bitcoin rose over 90X from the $10 region to a peak of about $1,180. For the second halving, bitcoin went as high as $2,800 from around $600 within a year before peaking at nearly $20,000 in Dec. 2017.

However, the crypto market has notably matured compared to 2012 and 2016. For one, bitcoin derivatives including futures and options are relatively more predominant lately , allowing a more advanced price discovery among market participants. By implication, the narrative of a rally driven by the supply-squeeze won’t play out so simply, a minimum of not within the short term.

“It may be a very different world in 2020 than it had been during the last two halvings, the derivatives market is far larger and more important,” said Garrick Hileman, head of research at Blockchain.com

“One way i might say the market has changed is that historically the trading market was more lopsided toward upward transactions because there have been not as some ways to take a position on the worth taking place , for instance , the power to borrow and sell short,” he added. “That’s something that now exists through futures and options. So of these products have created a more level playing field for people that want to back the worth going down”

An example of how a more robust price discovery system can overpower the demand and provide narrative is that the alleged role that the introduction of CBOE and CME bitcoin futures played within the sell-off from bitcoin’s high of nearly $20,000 in 2017. Although it’s yet to be proven, some believe that the introduction of CBOE and CME futures afforded cash-flush institutional traders a chance to bet against BTC, influencing commodity exchange behavior within the process.

Diego Gutierrez Zaldivar, CEO of IOV Labs, the corporate behind bitcoin smart contract platform RSK, argues that the likelihood of this dynamic playing out makes this halving event different from the primary two.

“While the reduction in bitcoin’s renewed supply thanks to the halving introduces the likelihood of a pointy rise in BTC price,” he said “it is feasible that smart institutional money will push prices down within the short-term, because it did when CME and CBOE introduced their futures in Dec. 2017.”

BTC currently features a bearish market sentiment despite halving

In the meantime, certain bitcoin market data shows that traders have a bearish sentiment round the halving event. Hileman pointed at the high demand for put options.

“When you probe the choices data, it’s just like the market is placing a premium on contracts that are below the present prices,” he said. “The options market seems to be suggesting that there’s more concern over prices moving downwards.”

The Bitcoin BTC put-call ratio data from crypto analytics firm Skew echoes to the present sentiment. As indicated within the chart below, the ratio has been trending north. A rising put-call ratio suggests that there’s a mounting demand for put contracts.

Skew BTC put/call ratio
Despite bitcoin halving, the bitcoin options market shows a bearish sentiment. Skew.com

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

With reference to the halving period, “if the choices skew is positive for a sustained period of your time , it indicates more concerns within the marketplace on the mining being potentially negative for mining companies and potentially having a negative impact on the worth of bitcoin,” said Goh.

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

And there could also be some real-world proof that miners aren’t particularly optimistic within the short-term post-halving.

Meltem Demirors, the chief strategy officer at CoinShares, during a Zoom call, referenced her firm’s observations of miners’ activities.

“I think miners are looking to opportunistically offload a number of their bitcoin inventory to feature capital to their record ,” Demirors said. “We’ve been lecture variety of miners on CoinShares’ capital broker-dealer side who are watching raising capital to create out new facilities, to shop for new machines and to increase their capacity.

“And we’ve seen tons of miners engaging with our capital market trading desk trying to find ways to manage and hedge their risk and lock in kind of an OPEX and develop a risk hedge portfolio strategy for the bitcoin they need on their record in order that they will meet their operating expense and reduce a number of the inevitable volatility that’s getting to come to miners around this event.”

SFOX, a Y Combinator-backed digital assets trading platform that gives one point of market access to institutional participants, have seen similar trends. Some miners are despondent on holding crypto so as to hide their overhead costs, the startup’s head of growth Daniel Kim said.

For context on why miners could be more cautious, consider that the bitcoin halving event would typically raise the breakeven price for miners.

John Todaro, the top of research at the institutional trading tools provider Tradeblock, said mining breakeven price for bitcoin will rise nearly 100% post-2020 halving, citing internal research.

“We have current mining breakeven price between $5,000 and $6,000 per BTC, but immediately after the halving, assuming hashrate stays where it’s today or maybe rises a touch bit, you’re getting to see the typical mining breakeven jump to about $10,000 to $13,000 per BTC,” Todaro said. “You got to see the market value of bitcoin get above those levels or miners are getting to be unprofitable, which could see a decline in hashrate, as miners exit the space.”

The changes coming to mining operations could spur some bearish narrative within the short-term supported the mining death spiral story. Therefore, this might potentially be the primary time within the network that the market value of bitcoin would stay below mining breakeven points for a substantial amount of your time , Todaro added.

BTC also remains correlated to stocks

There’s been wide media coverage on how the worth of bitcoin is tied closely to equities. Demirors, Kim and Todaro all believe bitcoin is indeed tracking stocks immediately which it’s probably a much bigger drive than the halving event within the short term.

Kim’s firm, SFOX, recently published a report, saying that BTC has sustained a “notably positive” correlation of 0.40 with the S&P 500 — despite the increased specialise in the block reward halving event.

Experts hold a positive long-term outlook for bitcoin

Given the somewhat docile market reaction to the halving event at the present , it raises the question of if the event has been priced in. the solution depends on who you ask. That said, most of the experts interviewed believe that the market hasn’t fully priced the halving event, with expectations of upper BTC prices over the future .

Based on a positive outlook for the three D’s of depletion (halving-driven supply cut), demand and dollars, CoinShares believe that the market value for BTC are going to be “materially higher” than present levels in 12 to 18 month, Demirors added, cautioning that the timing of a sustained bullish run will depend upon soon the bitcoin decouples from the macro narrative.

On the qualitative aspect of things, RSK’s Zaldivar believes that the strength of the bitcoin network is underappreciated and expects that more people will realize this with time.

“Bitcoin is fundamentally strong with an unmatched security because of its computing power, financial incentives and network effect, and it’s the foremost reliable and scarce digital asset within the world,” Zaldivar added. “With the economic uncertainty we are witnessing today, it might be no surprise to ascertain the bitcoin ecosystem grow to draw in institutional investors who perceive it as a store useful and a hedge.”

With reference to demand, United States-based digital asset manager Grayscale Investments reported within the half-moon that it saw a record of over $500 million in new investments from its clients. Michael Sonnenshein, the firm’s director said during a call that his firm is finding that more people are looking to diversify their portfolio to tap into the potentials of blockchain.

“We are seeing that more investors are wanting to either have some exposure for the primary time or increase their exposure to bitcoin during a world that’s characterized by quite little bit of economic uncertainty,” said Sonnenshein. “I think there’s an outsized group of investors that are excited by the long-term potential of the applications being built around bitcoin weather it’s payments or leveraging the bitcoin blockchain for cost savings.”

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