As a professional translator, I will provide an accurate and fluent translation of this news article, while maintaining a formal style and retaining proper nouns. Please see the translation below:
Due to the numerous “analyses” before each Bitcoin halving, many have claimed that this halving is different. So, is this year’s halving a positive or negative event? Will it bring about a bigger bull market? This article will explore how the market may react after the Bitcoin halving.
(Table of Contents)
The “Halving Cycle Theory”: Is it reliable?
Halving vs. Meme
Bitcoin Halving: Bullish or Bearish?
Conclusion
On February 29th, after several consecutive days of increase, Bitcoin quickly rose above $64,000, just a step away from its all-time high of $69,000. However, due to exchange rate fluctuations, if calculated in CNY, Bitcoin has already surpassed 450,000 yuan per coin, reaching a new historical high. However, on the same night, while the crypto market was still buzzing, traditional financial giant JPMorgan poured cold water on the situation by stating, “Analysts predict that Bitcoin’s price will drop to $42,000 after the halving.”
Recently, the crypto market has experienced numerous major events that have influenced the price of Bitcoin, such as the continuous growth of the Bitcoin ecosystem and the approval of spot ETFs. The next highly anticipated event is the halving, which will occur in a little over a month. As a significant event that symbolizes the cycle theory, Bitcoin halvings have consistently caused waves in the market.
Image Source: oklink Halving Countdown
The Halving Cycle Theory uses historical bull and bear market times to support the accuracy of the 4-year halving cycle, but some people try to scrutinize the details and find flaws in the theory to debunk its reliability.
Bitcoin Halving Timeline:
January 2009: Genesis block created, system initially set at 50BTC per block
November 2012: Halving at block height 210,000, reducing block reward to 25BTC
July 2016: Halving at block height 420,000, reducing block reward to 12.5BTC
May 2020: Halving at block height 630,000, reducing block reward to 6.25BTC
May 2024 (estimated): Halving at block height 840,000, reducing block reward to 3.125BTC
Since everyone’s perspective is biased, most people tend to believe in the viewpoint that benefits them the most. After lengthy analyses and discussions, the crypto community may simply reply with the phrase “Your analysis makes sense, but please don’t analyze next time.”
Whether the discussions and analyses on the cycle theory have a positive or negative impact ultimately depends on what people are more willing to listen to and believe.
Once there are expectations, everything feels right, and any information can be interpreted as positive news, which will trigger corresponding market reactions.
The famous “Ding Crab Effect” has always existed in specific stock markets. Every time a TV drama starring Zheng Shaoqiu is aired, investors become anxious. The Ding Crab Effect is a manifestation of herd behavior, where most people choose to follow the mainstream view out of fear.
Compared to the Ding Crab Effect, the “Halving Effect” of Bitcoin seems to have more logical and theoretical support. As a crucial rule designed by Satoshi Nakamoto for the Bitcoin system, it has been repeatedly verified, undoubtedly providing confidence and expectations.
In the crypto market, where bizarre things happen frequently, even purely speculative memes are being crazily pursued, let alone the halving, which has strong consensus. The halving has already become a meme, and just mentioning its approach brings back confidence to everyone subconsciously.
In fact, both the crypto community and the capital market need such a catalyst to ignite FOMO sentiment. After each halving, they will actively provide various bullish logics and analyses, interpreting every event as positive news and even engaging in self-hypnosis and self-suggestion.
Going a step further, even if the cycle theory is just a superstitious belief, when more people believe in it, it easily becomes a consensus and a subconscious judgment similar to a “biological clock,” forming a trend.
Just as the significant positive news of the spot ETF approval led to a drop in the market, the market is often not rational. People are more willing to believe in “good news reaching its peak” and other “laws.”
From the previous halvings, it can be seen that the crypto bull market is not solely attributed to the halving itself but mainly comes from the explosion of the digital gold concept, the rise of blockchain smart contracts, the implementation of DeFi applications, and various other logics supporting the previous bull markets. The future is full of variables, and the Bitcoin halving in previous years did not necessarily bring immediate benefits. In fact, many times, the market experienced a decline before and after the halving. The Bitcoin halving can only be considered an important trigger for a major market, rather than a direct factor for a bull market.
Whether the Bitcoin halving can bring about a major bull market as usual, at least, requires comprehensive consideration of the following variables:
Variable 1: Reduced mining rewards and increased production costs
This is the reason why the JPMorgan analyst predicted a sharp drop to $42,000 after the halving. Simply put, after the halving, the block reward for Bitcoin will directly decrease from 6.25 coins to 3.125 coins. Without breakthrough upgrades in mining hardware, the production cost for miners will significantly increase. The JPMorgan analyst believes that the rising production costs will have a negative impact on Bitcoin’s price.
In each halving cycle, there have always been people claiming that the halving will lead to a significant increase in mining costs, causing miners to withdraw their hash power. This would affect the stability of the Bitcoin network and even result in severe consequences. However, the results from the previous halvings showed that the opposite happened.
Although many people, including this JPMorgan analyst, may have overlooked the transaction fee income brought by miners and the Bitcoin ecosystem, according to on-chain data, the proportion of transaction fee income in miners’ total revenue has been decreasing. During the peak of the bull market, it could reach up to 40%, but now it generally ranges from 5% to 8%. If the Bitcoin ecosystem cannot sustain its momentum and the Bitcoin price cannot continue to rise, the issue of reduced mining income is indeed worth considering.
Image Source: oklink
Variable 2: Rise of the Bitcoin ecosystem
The unexpected development of the Bitcoin ecosystem from the bottom up has caught many off guard. However, it has undoubtedly provided another set of wings to the digital gold Bitcoin. People are eager to dig deeper into the value behind it, and perhaps beneath the surface lies an even larger gold mine. A chart released by top-tier project Stacks on social media vividly illustrates this expectation:
Variable 3: Global economic recession and no interest rate cuts by the USD
The spot ETF is just an entrance, and it needs capital inflows to be effective. Therefore, the real positive factor lies in the “money printing” by the USD this year, which will truly demonstrate the value of the ETF super entrance. When the expectation for Bitcoin is weak, the funds flowing into the spot ETF may also flow out at any time. If the US stock market experiences a severe downturn and a “stock disaster” with no bottom, will funds withdraw from Bitcoin spot ETFs first?
Variable 4: Bitcoin beginning to replace gold as a hedge?
From the perspective of another hedge function of Bitcoin, the current Bitcoin is very different. With the push of spot ETFs, Bitcoin’s transition to a global mainstream asset will gradually reduce its volatility, highlighting its role as “digital gold” for hedging. It is worth noting that during economic recessions and stock market declines, people usually choose hedge assets such as “gold” and its derivatives to hedge risks. Now, there is an additional option. Will funds flow to Bitcoin ETFs?
Recently, analyses have indicated that the massive capital inflows into Bitcoin spot ETFs seem to come at the expense of outflows from gold ETFs. In the first week of February, investors redeemed $858 million from gold ETFs, and the outflows from gold have reached $3.2 billion as of last week.
Variable 5: Failure of the law, diminishing momentum and influence of the Bitcoin halving
There is a logic: when everyone expects something to happen, the market tends to do the opposite, and most people end up being harvested by capital.
In the past, there was a law in the Hong Kong stock market during the 1980s and 1990s called the “Five Poor, Six Desperate, Seven Reversal” law. It means that the stock market starts to decline in May and experiences a major drop in June, but in July, the market miraculously rebounds. As this “prophecy” or “law” was consistently proven, in the mid to late 1990s, people started finding ways to “prevent” or “counter” this phenomenon, causing the cycle to appear earlier and even lose its reference value.
The reduction in block rewards in each halving cycle is also significantly decreasing. In other words, the steps and intensity of each halving become smaller and smaller. This mechanism helps stabilize the network and price in the later stages. However, subsequent halvings may no longer have the momentum and substantial influence of previous halvings. It will become more of a “commemoration day,” and the future will truly depend on the “Bitcoin ecosystem.”
Changes in the steps and intensity of block reward reduction in each halving cycle
Although some variables may not seem optimistic, and others are difficult to judge, it is hoped that the outcome will lean towards the positive side. When a trend is formed, everything will move forward accordingly.
Perhaps the Bitcoin halving has never been the direct cause of a bull market but rather the missing piece of the puzzle when everything is ready. The market is not a place for judging right or wrong and being rational. The significance of the cycle theory is no longer important because there is a strong demand and logic behind it.
In 2024, despite mixed variables, capital can use numerous narrative combinations, including halving + ETF inflows + Bitcoin ecosystem + USD interest rate cuts, to solve all problems. In this context, it is possible for the cycle theory to be “installed” again.
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