Bitcoin, a digital currency created in 2009 by an individual or group using the pseudonym Satoshi Nakamoto, differs from conventional currencies in that it lacks a central authority to issue or regulate its supply and demand. Instead, bitcoins are generated through a process called mining, where miners use sophisticated computers to solve complex mathematical problems and receive bitcoins as a reward.
However, the amount of bitcoin that can be mined is not unlimited. Satoshi Nakamoto set a maximum limit of 21 million bitcoins that can exist in the system. To ensure that bitcoins are not depleted too quickly, Satoshi also designed a mechanism called halving, which periodically reduces the amount of bitcoin awarded to miners each time they complete a transaction block.
Halving occurs every 210,000 blocks, or approximately every four years. The first halving occurred in November 2012, reducing the block reward from 50 bitcoins to 25 bitcoins. The second halving occurred in July 2016, reducing the block reward to 12.5 bitcoins. The third halving occurred in May 2020, reducing the block reward to 6.25 bitcoins. The fourth halving is estimated to occur in April 2024, when the block reward will decrease to 3.125 bitcoins.
Halving has a significant impact on the dynamics of the bitcoin market because it makes new bitcoin supplies scarcer and harder to obtain. This can increase demand and the price of bitcoin as miners, investors, and users compete for available bitcoins. It can also increase transaction fees as miners become more selective in choosing which transactions to include in blocks.
However, halving also poses risks and challenges for both miners and bitcoin buyers. In this article, we will discuss why you shouldn't buy bitcoin during halving, its relation to the "sell on news" strategy, and evidence comparing bitcoin halving to bitcoin price when halving occurs, but this correction only occurs briefly to continue the rise of the cryptocurrency bull run.
The "Sell on News" Strategy
The "sell on news" strategy is a trading strategy that profits from price movements caused by expectations or speculation about news or events that will affect the market. This strategy is based on the expression "buy the rumor, sell the news," which implies that the price of an asset will rise before the news or event occurs as traders buy the asset based on rumors or expectations, and then will decrease after the news or event occurs as traders sell the asset to realize profits.
The "sell on news" strategy can be used by traders seeking short-term profits in various financial markets, including the bitcoin market. One example of news or events that can trigger the "sell on news" strategy in the bitcoin market is halving. Halving is an event known to the entire bitcoin community, which can create high speculation and anticipation before it occurs.
Traders who use the "sell on news" strategy can buy bitcoin before halving occurs, hoping that halving will increase demand and the price of bitcoin because new bitcoin supplies become scarcer. Then, they can sell bitcoin after halving occurs, hoping that halving will decrease demand and the price of bitcoin because transaction fees become higher and mining becomes less profitable.
Evidence Comparing Bitcoin Halving to Bitcoin Price
To see if the "sell on news" strategy applies to bitcoin halving, we can look at how the price of bitcoin reacts to previous halvings. If we look at the history of bitcoin halving, we can see that previous halvings have had a significant impact on the price of bitcoin, but do not always align with the "sell on news" strategy. Let's analyze them one by one:
- First Halving (November 2012):
During the first halving, the price of bitcoin rose from around $12 to around $1,000 within a year. This indicates that the first halving increased demand and the price of bitcoin, as the first halving was a new and exciting event for the bitcoin community. Traders who bought bitcoin before the first halving and sold it after the first halving would incur losses because they missed out on the extraordinary price increase. The "sell on news" strategy does not apply to the first halving.
- Second Halving (July 2016):
During the second halving, the price of bitcoin dropped from around $670 to around $550 within a few days after halving. This indicates that the second halving decreased demand and the price of bitcoin, as the second halving was considered a predicted event and not surprising to the bitcoin community. Traders who bought bitcoin before the second halving and sold it after the second halving would profit because they managed to sell bitcoin at a higher price than the purchase price. The "sell on news" strategy applies to the second halving.
- Third Halving (May 2020):
During the third halving, the price of bitcoin rose from around $8,500 to around $9,500 within a few days after halving. This indicates that the third halving increased demand and the price of bitcoin, as the third halving occurred amidst the global economic crisis caused by the Covid-19 pandemic, making bitcoin an attractive asset as a hedge against inflation and currency instability. Traders who bought bitcoin before the third halving and sold it after the third halving would incur losses because they sold bitcoin at a lower price than the purchase price. The "sell on news" strategy does not apply to the third halving.
From the above analysis, we can conclude that the "sell on news" strategy does not always apply to bitcoin halving because bitcoin halving is influenced by many other factors besides supply and demand, such as market sentiment, economic conditions, and unforeseen factors. Therefore, traders who want to buy bitcoin when halving occurs should be cautious and not rely blindly on the "sell on news" strategy.
Bitcoin Price Correction Only Temporary to Continue Cryptocurrency Bull Run
Although bitcoin halving can cause significant price fluctuations in the short term, bitcoin halving can also trigger a long-term increase in bitcoin prices. This is because bitcoin halving can increase the scarcity and value of bitcoin, as well as reduce selling pressure from miners who need to sell bitcoin to cover their operational costs.
If we look at the chart above, we can see that after each halving, the price of bitcoin experiences a correction or temporary decline, but then continues with a larger and longer increase, known as the cryptocurrency bull run.
A cryptocurrency bull run is a term used to describe a period in which cryptocurrency prices increase significantly and consistently due to optimism, enthusiasm, and high confidence among investors and cryptocurrency users. Cryptocurrency bull runs are usually triggered by several factors, such as technological innovation, mass adoption, supportive regulation, or significant events that increase exposure and public awareness of cryptocurrency.
Here are some examples of cryptocurrency bull runs that have occurred in the past:
- 2013 Bull Run: In 2013, the price of bitcoin rose from around $13 to around $1,000, due to increased demand from China, the introduction of the first bitcoin exchanges in the US, and the recognition of bitcoin as legal currency in Germany.
- 2017 Bull Run: In 2017, the price of bitcoin rose from around $1,000 to around $20,000, due to a surge in interest from institutional investors, the launch of bitcoin futures contracts, and the popularity of alternative digital currencies such as Ethereum, Ripple, and Litecoin.
- 2020-2021 Bull Run: In 2020-2021, the price of bitcoin rose from around $4,000 to around $60,000, due to the impact of the Covid-19 pandemic, which prompted people to seek safe assets not dependent on governments, adoption of bitcoin by large companies such as PayPal, Tesla, and MicroStrategy, and support from prominent figures such as Elon Musk, Jack Dorsey, and Michael Saylor.
From the above examples, we can see that each cryptocurrency bull run has different characteristics and triggers, but also similarities, namely that each cryptocurrency bull run is preceded by a bitcoin halving. This indicates that bitcoin halving plays an important role in shaping the cryptocurrency market cycle, which consists of phases such as accumulation, expansion, euphoria, correction, and depression.
Therefore, traders who want to buy bitcoin when halving occurs should consider that bitcoin halving is not the end of the story, but the beginning of a larger and longer story. Bitcoin halving is an opportunity to buy bitcoin at a lower price before the price of bitcoin surges to higher levels.
Conclusion
Bitcoin halving is an event that reduces the amount of bitcoin awarded to miners each time they complete a transaction block. Halving occurs every 210,000 blocks, or approximately every four years. Halving has a significant impact on the dynamics of the bitcoin market because halving means that new bitcoin supplies become scarcer and harder to obtain.
Bitcoin halving can trigger the "sell on news" strategy, which is a trading strategy that profits from price movements caused by expectations or speculation about news or events that will affect the market. The "sell on news" strategy is based on the expression "buy the rumor, sell the news," which implies that the price of an asset will rise before the news or event occurs and then decrease after the news or event occurs.
However, the "sell on news" strategy does not always apply to bitcoin halving because bitcoin halving is influenced by many other factors besides supply and demand, such as market sentiment, economic conditions, and unforeseen factors. Therefore, traders who want to buy bitcoin when halving occurs should be cautious and not rely blindly on the "sell on news" strategy.
In addition, bitcoin halving can also trigger a long-term increase in bitcoin prices because bitcoin halving can increase the scarcity and value of bitcoin, as well as reduce selling pressure from miners. Bitcoin halving can cause a temporary price correction, but then continue the cryptocurrency bull run, which is a period in which cryptocurrency prices increase significantly and consistently.
Therefore, traders who want to buy bitcoin when halving occurs should consider that bitcoin halving is not the end of the story, but the beginning of a larger and longer story. Bitcoin halving is an opportunity to buy bitcoin at a lower price before the price of bitcoin surges to higher levels.
That's the article I created about why you shouldn't buy bitcoin during halving. I hope this article is useful and informative for you. If you have any questions, suggestions, or criticisms, please write them in the comments section below. Thank you for reading this article.
Comments
Post a Comment