Pantera Capital estimates that if the history of the halving effect repeats itself, Bitcoin may reach a price peak of $115,212 in August this year.
Written by: Dan Morehead and Joey Krug, the former is the co-chief investment officer and chief executive officer of Pantera Capital; the latter is the co-chief investment officer of Pantera Capital. Compilation: Lu Jiangfei
We discussed the topic of Bitcoin halving in an email to investors in May, when Bitcoin’s block reward had just been halved. At that time, we wrote:
“The price trend of Bitcoin in the past two weeks has been largely calm. Some commentators believe that Bitcoin block reward halving has occurred, but no money has been made from it. Therefore, we emphasize that Bitcoin block reward halving is a major event. , Its impact may take several years to show up. Generally speaking, in the 1.3 years before the block reward is halved, the market may be underestimated. On average, the market peak time may be in the block About 1.2 years after the reward halving occurs, such a complete cycle may take about two and a half years.”
Now, the “halving” effect is taking place-exactly in line with our predictions.
To make a long story short,
The “halving” will have a huge impact-but it often takes a year or two to see what effect the halving has on the entire market.
In the letter to investors in April last year, we gave some forecasts, and now it seems that those forecasts are basically consistent with the actual situation. Our analysis is based on comparing Bitcoin’s supply/traffic reduction trend with respect to circulation. We compare each block reward halving every time it occurs, and also evaluate the subsequent impact of the halving on the Bitcoin price (see below There is a complete analysis).
In our investor letter issued in April last year, we predicted that if Bitcoin experiences a historical “stock-to-flow” impact, then every month thereafter, Bitcoin prices will rebound in the following path:
Although it has experienced slow changes over a period of months, the current price changes of Bitcoin are basically in line with expectations. So the question is: Will Bitcoin reach $115,212 before August 1, 2021?
Regarding whether Bitcoin will reach $115,212 on August 1, 2021, I didn’t say that I would bet all my belongings on this, but I think it’s really possible, and we are moving in the right direction. go ahead.
— On January 8, 2021, Dan Morehead, Co-Chief Investment Officer and CEO of Pantera Capital, said in an interview with Fox Business
When everyone is asking whether the Bitcoin halving effect has been fully reflected in the current price, I will remind them to remember Jesse Powell, CEO of the cryptocurrency exchange Kraken, on the investor conference call in May 2020. Wonderful response:
Question: Has the Bitcoin halving effect been reflected in the price?
Answer: I don’t think Bitcoin will price itself.
— Jesse Powell, Bitcoin Halving Conference Call, May 12 2020
At least for now, the price of Bitcoin does not seem to reflect the imbalance between supply and demand. We are still below the 10-year index compound return trend line, and the current Bitcoin price is lower than our previous forecast. The Federal Reserve is printing money like crazy, and Morgan Stanley has bought a 10% stake in the business intelligence software giant MicroStrategy. It feels that the halving effect is not fully reflected in the Bitcoin price.
Bitcoin halving background
The money supply function of the Bitcoin protocol is exactly the opposite of the quantitative easing policy. Now, about 6.25 bitcoins are produced every 10 minutes. On Bitcoin, we don’t see “Greenspan put.” (Chain note: Greenspan put is a market slang that refers to the actions taken by former Fed Chairman Greenspan to prevent the market from falling sharply and continuously, such as cutting interest rates to avoid Investors have a risk aversion and hinder the growth of the US economy.) Now, for Bitcoin, one thing that cannot be shaken is: 6.25 Bitcoins are produced every 10 minutes.
Every four years, Bitcoin block rewards are halved-until 2140, all 21 million Bitcoins are mined.
Bitcoin supply and token distribution rules are completely based on mathematical principles, and the design principles are transparent and predictable.
“The total supply of Bitcoin is 21 million. When the block is generated, the Bitcoin will be distributed to the network nodes, and the Bitcoin block reward will be reduced by one side every four years. The first four years is 10,500,000; the second 5,250,000 in four years; 2,625,000 in the third four years; 1,313,500 in the fourth four years…”
— Satoshi Nakamoto, Encrypted Mailing List, January 8, 2009.
The price impact of Bitcoin halving
The Bitcoin block reward is halved and the price of the currency will soar. As we described in our recent letter to investors, it makes sense that the halving event will have an impact on the price of Bitcoin, because if the supply is cut by half (especially in the case of a surge in market demand), there will be supply Due to the shortage of quantity, the price is bound to rise sharply, so as to stimulate those who hold Bitcoin to sell.
The figure below shows the Bitcoin price trend before and after the previous three Bitcoin block reward halvings.
From historical data, before the halving, the average time for the Bitcoin price to bottom was 459 days, and then the price would gradually climb until the halving was approaching, and then soaring. From the halving to the bull market, the average time of this period is about 446 days.
In this cycle, the time the market is at a trough before the halving will actually be as long as 514 days. We estimate and make a judgment based on this range: if history repeats itself, the Bitcoin price will reach its peak in August 2021.
STOCK-TO-FLOW model prediction
We study and analyze the framework of Bitcoin block reward halving. In fact, we study the change in the “stock-to-flow” ratio of each halving, and then extend the research results to subsequent halving events. The first Bitcoin block reward was halved, accounting for 15% of the total supply. This will not only have a huge impact on the supply, but also on the price.
The subsequent Bitcoin block reward halving may gradually reduce the price impact, because the ratio of the supply after the last block reward halving to the next block reward halving will continue to decrease. The figure below shows the supply before each Bitcoin block reward halving, and the percentage change in supply after each Bitcoin block reward halving.
The second Bitcoin block reward was halved, and the supply was only one-third of the first halving. This phenomenon is very interesting, because the impact of this halving on the price increase is exactly one-third.
If we extrapolate this trend to the Bitcoin block reward halving event in 2020, then:
This time the decrease in Bitcoin supply is only 40% of 2016. If this relationship is established, it means that the price of Bitcoin will rise by 40% of the previous rate-so we expect Bitcoin to reach a peak price of $115,212 in August 2021.
I realized that some people might find this kind of price prediction ridiculous. But do you know? When we established the Pantera Bitcoin Fund, the price of Bitcoin was only $65, but at that time we boldly predicted that the price of Bitcoin would reach $5,000. As a result, many people in the market also found this prediction very absurd.
Mark Twain once said this sentence: History will not repeat itself, but there will always be surprising similarities-we feel that the possibility of Bitcoin price increase is far greater than 50%, and the magnitude will be large.
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