Beware the predictive power of Bitcoin halvings

• The fourth Bitcoin halving will occur in April 2024
• Previous halvings have preceded sharp price rises 
• There are other factors at play, however, meaning caution should be taken when assuming that halvings for predictive power

Before we get to the heart of this piece, let us present a chart. It shows the Nasdaq Composite, the tech-heavy American stock index. Marked on the chart are three as-yet-unnamed events. What do you notice?

These events seem to all be followed by positive periods of expansion. They are, if you have not deduced by the title of this piece, the three Bitcoin halvings that have occurred to date. 

You may sense where we are going with this, but it is surprising how often the timing of these halvings within a macro context is overlooked within the crypto space. Halvings mark the dates at which the block subsidy reward on the Bitcoin blockchain is halved, and occur every four years. In other words, the new issuance of Bitcoins – released to miners as they work to validate new transactions – is cut by 50% every four years. 

This supply cut phenomenon is central to the underlying concept of Bitcoin, a hard-capped currency with a pre-determined supply schedule, immune to the whims of money printers and an elastic supply. It follows that many point towards this draining supply as an inevitable boost to the price. 

This is a fascinating relationship with regard to the long term performance of Bitcoin, but there is also an intriguing subplot to follow in the short-term: are these halvings priced in? 

Because they happen in advance, the argument that they should be priced in is an easy one to make, and essentially draws upon one of the most famous mantras in finance: the efficient markets hypothesis (EMH). 

And yet, the stellar performance of Bitcoin following previous halvenings leads some to swear that halvenings undoubtedly pump the price in. We will not go into that side of the argument here (on a high level, it is a complex relationship between miners and price moving towards the cost of production and is not necessarily as easy as just preaching the EMH). 

For now, we will play devil’s advocate and point out reasons why one should be careful regarding the assumption that Bitcoin will inevitably spike next year, given the next halving is slated for April 2024. 

The above chart clearly shows that…