This month in crypto: halving déjà vu

Harry Hamburg -

Well, Bitcoin halved again.

I’ve been witness to three halvings now, but I’ve only been writing about crypto long enough to cover two of them.

The last halving I wrote about right here on this website: Bitcoin halves during the worst recession on record.

You can probably tell by the title of that article things weren’t going quite so smoothly for crypto – or the rest of the world – back then.

Here’s what I wrote about it at the time:

Today, Bitcoin is alive and well, and many of its proponents see now as its time to shine.
As more and more debt is racked up and more and more money is printed to speed the economic recovery, the real value of money will decrease.
While the real value of Bitcoin – which has a limited supply – will increase against that money.
At least, that’s the theory.
And all of this just so happens to coincide with the Bitcoin halving, which will take place on Tuesday the 12th of May [2020].
As Forbes points out, the last three halvings have led to Bitcoin’s price surging to never before seen levels.
From Forbes:
First bitcoin halving: During 2012, the price of bitcoin increased from $11 to $1,000.
Second bitcoin halving: From 2016-17, the price ballooned from $700 to $20,000.
Third bitcoin halving: Scheduled on May 12, 2020 (the price impact is still yet to be seen).
However, those figures do simplify what actually happened. The ride to those prices was not smooth. As with all things in crypto, it was filled with huge drops along the way.
And there was a lot more going on than simply just the Bitcoin halvings.
Most of the 2017 growth can be attributed to the explosion of other cryptocurrencies and an unprecedented interest in the possibilities they brought with them.
So now, as we enter into a new phase for the world, the economy and of course, for Bitcoin, it will be interesting to see what the next 12 months bring.
Well, the next 12 months were… unprecedented.

Not only did bitcoin break its previous all-time high of roughly $20,000, but it went on to top $63,000.

Source: Coin Gecko + me

So, in the 12 months after the last halving in 2020, Bitcoin gained more than 600%.

(And 18 months later it was back down below $16,000.)

When I wrote about the 2020 halving, no one outside of the world of crypto really cared.

Today, it’s being covered by every major news outlet in nearly every country in the world.

Why?

Well, because of the monumental run Bitcoin went on last time. 

And also, perhaps even more importantly, because Bitcoin recently broke its all-time high, hitting $73,700 last month.

This time, the all-time high was broken, not because of the halving but because of the new Bitcoin ETFs.

(Which I wrote about here: US Bitcoin ETFs banned in the UK, here: “one trillion dollars…” and here: what the all-time high means)

It’s impossible to say if the halving really has any effect on the Bitcoin price at all… but many people think it does. Like many people believe that blowing on dice will affect the outcome of the roll.

It really feels like more of a self-fulfilling prophecy than an actual law of economics.

The way it works is that every 210,000 blocks of Bitcoin’s blockchain the number of Bitcoin that miners get as a reward each block halves.

And 210,000 blocks equates to roughly four years.

So, over time the number of new Bitcoin being released to the world decreases.

So – per the rules of supply and demand – if the supply reduces and demand stays the same, the price should go up.

However, it’s not really that the supply is being reduced, it’s that the supply isn’t expanding as fast… it’s not actually reducing. It’s actually still increasing.

Which is why the price rules aren’t exactly as clear cut as many people think.

However… as with any investment – or anything in the world for that matter – bitcoin is worth whatever someone is willing to pay for it.

And because so far it has increased in price massively after each halving, people think it will do the same thing again… so they are willing to pay more for it, which genuinely makes it worth more.

Self-fulfilling prophecy.

Or is it?

Maybe the economic laws of the halving are real.

Either way, it’s the same outcome.

Unless Bitcoin ends up going down this time, which seems unlikely due to the massive demand of the Bitcoin ETFs. But it’s still entirely possible.

I guess that’s half the fun.

Here are some other crypto things that happened this month

The Securities and Exchange Commission (SEC) might be gearing up to sue Ethereum.

Meanwhile, BlackRock has launched a tokenised fund on Ethereum

Japan's state pension fund – the biggest in the world – is looking to add Bitcoin to its portfolio

 The SEC sues the world’s largest decentralised exchange, uniswap 

I actually wrote a big in-depth feature about decentralised exchanges, and uniswap in particular, in February: Vitalik, vampires and the birth of Decentralised Finance. 

And the SEC suing them could be… big.

Okay, that’s all for today. 

Thanks for reading.

Happy halving!

Harry

 

Full disclosure: At time of writing, I held the following cryptos: Ethereum, IOTA, Radix, Mina Protocol, Aleph Zero.

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