Bitcoin’s “halvening” won’t boost its price – Financial Times


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Halvening is not a word. As I type it, my spell-checker helpfully underlines the offending (nay, offensive) gibberish with a red dotted line, to make sure that I don’t in fact mean “halving”. That would be a perfectly good word, but it’s not the one I mean. No — because I’m using a word born of a land where bunk and baloney thrive and reality, less so. That land is cryptoland. There, “halvening” has become a part of the vernacular, along with “HODL”, “rekt”, and “mooning” (not showing off one’s posterior, but instead the state of a cryptocurrency whose trajectory is skyward). 

And according to the internet, it’s this halvening that is guaranteed to see bitcoin mooning in 2020. The cryptonet, mainly, but increasingly other places too. Like Vanity Fair, for example, who on Wednesday published a piece under the boosterish headline “WE ARE GOING TO SEE HIGHER HIGHS IN THE VERY NEAR FUTURE”: IS BITCOIN GOLD RUSH 2.0 JUST AROUND THE CORNER? (H/t Reuters’ Anna Irrera for drawing our attention to the piece.)

The subhead tells us:

Predicting where the volatile cryptocurrency will net out is like predicting which way the wind will blow next week—but experts have one surefire way to do it.

(You guessed it: the halvening.) 

Sounds intriguing, but actually no. No, they don’t. Before we get onto why not though, what is the halvening, and when is it going to happen? 

The halvening is the gobbledygook term used to describe the point at which the new supply of bitcoins being pumped into the system every ten minutes halves. This will happen, per bitcoin’s original design, approximately every four years until around 2140, when the total supply of close to 21 million bitcoins is reached (we’re currently at just over 18 million).

The last time we had a halvening was on July 16 2016, when the number of new bitcoins that become available for crypto miners every ten minutes — the so-called “block reward” — dropped to 12.5, from 25 previously. Around May 12th of this year, that number will halve again.

Vanity Fair explains: 

Sometime in May this year, the number of coins available will be cut in half, from 12.5 to 6.25, in an event known as the “halvening.” (Yes, it’s “halvening,” not halving.) That means that the age-old phenomenon of supply and demand will kick in. As Rose explained, every time a halvening has occurred in the past, the price of Bitcoin has risen, then eventually, fallen. This time around, he said, the climb has barely begun.

So let’s start with that age-old phenomenon of supply and demand. What that principle says, as we all know, is that if the availability of a certain good or service falls, while demand remains steady, the value of that good should go up (and vice versa), all else remaining equal. 

But the thing is, bitcoin’s supply is not actually about to halven (nor to halve, for that matter). Its supply is increasing, and will continue to do so until 2140, so there’s no reason to believe that, by the laws of supply and demand, there should be a price increase. There are more bitcoins to buy and sell today than there were yesterday, and there will be more bitcoins to buy and sell on May 13 than there were on May 12; it’s just that the rate at which new bitcoins are being pumped out will slow. 

You see although crypto fans love to argue that one of bitcoin’s main selling points is that provides a hedge against the relentless monetary easing inflicted upon the public by evil central bankers, bitcoin has actually been in a state of perpetual money printing since its very inception.

So when the rate at which new supply halves, that won’t constitute any kind of removal of money from the system, or monetary tightening. How we should understand the halvening is, rather, as a form of tapering.

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But unlike central bank tapering, we don’t need forward guidance or dot plots to work out when this tapering will occur, and at what pace; it’s all pre-determined. There are no surprises. And what that means is that, if we are to believe that the bitcoin market is in any way free and efficient (and not just subject to Tether-fuelled pump-and-dump activity), as its advocates like to say it is, this tapering should already be priced in, as it is already known about by market participants. 

Of course we don’t actually think that the bitcoin market is efficient, so it could be that, even if not by the laws of supply and demand, the price of bitcoin rises on the back of shill-ticles like this one, which could increase demand even if not managing to magically reduce supply.

But there’s no great reason to think that will happen, given the plethora of other factors and unknowns that affect bitcoin’s price. People like to claim that the last time there was a “halvening”, that boosted bitcoin’s price, but that’s not quite true either. 

Vanity Fair, again: 

The price [later] crashed to the $200 range, where it remained for the next few years until the next Bitcoin halvening, which occurred July 9, 2016.” That halvening, of course, led to the “Bitcoin boom” that went viral and saw the price of a Bitcoin ascend into the stratosphere.

Bitcoin actually fell slightly in price on July 9 2016, and didn’t recover until October that year. At that point, it did indeed start to climb more rapidly, but not as rapidly as over the course of 2017; and the reason for that was largely the ICO boom and general cryptomania, during which time the supply of cryptocurrencies was, ironically, expanding massively.

We’re not saying bitcoin won’t rise in price this year — trying to predict price movements in a market with no fundamentals and in which pump-and-dump trading is rife is a fool’s game. It might rise, but it might fall. And the idea that a slowing down of the number of new coins being added to the system is somehow going to pump bitcoin to $50,000 or higher, as some are claiming, makes about as much sense as the word halvening. 


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