Bitcoin Price May Drop After Halving, Historical Data Shows

The top cryptocurrency by market value has risen by over 130% since bottoming out at $3,867 on March 13 according to CoinDesk’s Bitcoin Price Index. The cryptocurrency jumped from $6,700 to $9,400 in the last 10 days of April alone. What’s more, prices gained over 15% last week to register bitcoin’s first seven-week winning streak in 12 months.

Notably, the big gains have happened in the weeks leading up to the mining reward halving, due on May 12, and are reminiscent of similar price rallies seen ahead of the previous two halvings, which took place in 2016 and 2012.

The term “halving” refers to a programmed-in event in bitcoin’s code, which reduces the reward per block mined by 50% every four years to control inflation. Following the upcoming halving, rewards issued will drop to 6.25 BTC from the current 12.5 BTC.

Bitcoin appreciated by 34% from $9.5 to $12.75 in the four weeks to Nov. 28, 2012, when mining rewards were trimmed by 50% for the first time. The cryptocurrency underwent its second halving on July 9, 2016. On that day, it was trading near $660, representing over 45% gain on the low of $440 observed in mid-May (though it peaked at $780 in mid-June).

Bitcoin also witnessed unprecedented gains in 12 to 15 months following previous halvings. For instance, the cryptocurrency rose to a record high of $20,000 in December 2017.

Some observers expect bitcoin to chart a similar uptrend following the May 2020 supply cut. Investors, however, should note that the previous bull runs did not start immediately after halvings. In fact, the 2016 halving was followed by a notable price drop.

Bitcoin traded in a sideways manner for over two weeks following its second halving and fell to $465 on Aug. 2 – a loss of nearly 30% from the halving day price of $660.

The fresh record high above $1,160 was set nearly eight months after the supply cut. The upward momentum gathered pace in the following months and prices reached $20,000 in December 2017.

Some investors would argue that the cryptocurrency remained bid following its first halving on Nov. 28, 2012. However, back then, the community was quite small and primarily consisted of “believers,” who cheered the first supply cut.

That said, prices rose only 6% from $12.75 to $13.50 in the two weeks after halving and remained sidelined in the following five weeks.

Some miners may take advantage of the recent price rise by liquidating their crypto earnings over the next 12 days. “That will allow them to keep accumulating bitcoin post-halving,” said Ashish Singhal, CEO, and founder of the cryptocurrency exchange Coinswitch.co.

The May 2020 halving is different from the previous two events, as it is happening against the backdrop of the coronavirus crisis.

“This Bitcoin halving will certainly be different to the last, as Satoshi Nakamoto’s economic system will have the opportunity to prove its resilience and strength in comparison with traditional Wall Street protocols,” said Andy Ji, co-founder of Ontology, the public blockchain and distributed collaboration program.

The COVID-19 pandemic has shaken the global economy and forced governments and central banks across the globe to add trillions of dollars of stimulus to the financial system.

The global economy was in relatively better shape when the cryptocurrency experienced its second supply cut in July 2016. Notably, China’s producer price index or factory-gate prices bottomed out in the first quarter of 2016 and turned positive in September of that year, triggering a reflationary bull market in commodities and equities.

Put simply, people currently have a strong reason to search for alternatives like bitcoin, which are getting scarcer with every halving. As a result, notable price dips, if any, could be short-lived and the odds of bitcoin setting new highs next year look strong.

Open interest or open positions in futures listed on the Chicago Mercantile Exchange, which is considered synonymous with the institutional activity, rose to $339 million on Friday – the highest level since July 10, 2019, according to data provided by the crypto derivatives research firm Skew. The metric has risen sharply from the low of $107 million observed on March 12.

Bitcoin Price May Drop After Halving, Historical Data Shows, CoinDesk, May 4