Bitcoin Halving Effect: Exploring Emotion and Logic

Bitcoin Halving is widely regarded as a key factor driving its price increase. However, the mechanisms behind this phenomenon are more complex than mere scarcity.

Halving essentially refers to the reduction in output. The entire network invests the same computational resources, but the amount of Bitcoin produced is halved. This leads to two possible scenarios:

1. If the total network hash rate halves and the mining costs remain unchanged. However, due to the expectation of price increase and the sunk costs already incurred, the hash rate is likely to exceed the level before the Halving.

2. If the computing power exceeds half of that before the Halving, the mining cost will actually increase. As more high-cost Bitcoins are produced, the price will also be driven up. This explains why the peaks of Bitcoin bull markets usually occur more than a year after the Halving.

Therefore, the Halving driving the bull market is not only due to emotional factors but also includes cost factors. However, it is important to note that costs cannot fully determine prices, especially for cryptocurrencies.

Litecoin Halving Performance Analysis

There is a view that the effect of the Litecoin Halving in 2023 may not be as pronounced as in 2019, which could indicate that the upcoming Bitcoin Halving may also struggle to achieve good results. However, this comparison may overlook some key factors.

The Litecoin Halving in 2019 occurred in August, while the price peak appeared in June. This indeed reflects the impact of Halving on market sentiment. However, more importantly, in June 2019, the Federal Reserve began to cut interest rates, which may have had a greater effect on the price.

Macroeconomic Environment and Cryptocurrency Bull Market

Although many investors do not pay much attention to the macro economy, Bitcoin has actually been influenced by macro cycles. By observing past bull markets, we can find some interesting patterns:

• Bitcoin is expected to reach its price peak about 12-18 months after the Halving.
• After the M2 money supply growth rate in the United States reaches its peak, Bitcoin reaches its price high point approximately 9-22 months later.
• About 12 months after the U.S. presidential election, Bitcoin reached its price peak.

These patterns suggest that the design of Bitcoin may have considered U.S. policies and economic cycles. The U.S. election period is often accompanied by loose monetary policies, which can increase market liquidity, and some funds may flow into speculative markets.

Insights from 2015

Analysis shows that the periodic bull market of Bitcoin is not only influenced by Halving but also closely related to macro factors. Therefore, the poor performance of the Litecoin Halving in 2023 does not mean that there won't be a bull market in 2025.

The benefits of Bitcoin Halving will still exist, and the Federal Reserve will eventually lower interest rates, with US dollar liquidity shifting from tightening to easing. However, due to macroeconomic factors, the next bull market may be delayed until around 2026.

Timing for Bottom Fishing

Determining the timing for bottom fishing requires more information, especially the Federal Reserve's dot plot. Stopping interest rate hikes and starting to cut rates are two key turning points that could trigger a short-term sentiment rebound.

However, it is important to be cautious as the M2 money supply in the United States has experienced negative growth for the first time, leading to tight dollar liquidity. Even if interest rates begin to be lowered, the high interest rate environment will continue for some time, and the repayment pressure from previous high-interest loans will also become apparent.

Therefore, bottom fishing may require some patience. In the short term, there may be speculative opportunities in certain small cryptocurrencies, but in the long run, investing in small cryptocurrencies still requires extra caution.