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The Bitcoin Halving
One of the most important and innovative features of bitcoin is the hard-capped supply of 21 million.
The total supply is not specifically defined in the code, but is instead taken from the code’s issuance schedule, which is halved every 210,000 blocks or roughly every four years. This reduction event is called bitcoin halving (or “halvening” in some circles).
When Bitcoin miners successfully find a block of transactions that links a set of new transactions to a previous block of confirmed transactions, they are rewarded with newly created bitcoins. The bitcoin that is newly created and given to the winning miner of each block is called a block subsidy. This subsidy combined with the transaction fee sent to paying users to confirm their transaction is called a block reward. The block subsidy and reward encourage the use of computing power to keep the Bitcoin code running.
When bitcoin was first released to the public, the block subsidy was 50 bitcoins. After the first halving in 2012, this number was reduced to 25 bitcoin, then 12.5 bitcoin in 2016. Most recently, the halving of bitcoin took place on May 11, 2020, with miners now receiving 6.25 bitcoin per new block.
The next emergence will come in about a year. The exact date will depend on the amount of hash power that joins or leaves the network, as it affects the speed at which blocks appear. Estimates for the next halving range from late April to early May 2024. After the next halving, the block subsidy will be reduced to 3.125 bitcoin.
In the past, the price of bitcoin increased significantly after the emergence, even after many months after the reduction of the subsidy. Every halving cycle, there is a debate about whether the halving is priced or not. This question considers the fact that the halving is a well-known phenomenon and tries to solve if the market will put it in the exchange rate of bitcoin.
Long-Term Holder Dynamics
Our main thesis is that the emergence will lead to a demand-driven phenomenon in bitcoin, because market participants are well aware of the absolute lack of digital bitcoin. This leads to a rapid phase of exchange rate appreciation. This hypothesis is somewhat different from the main narrative, which is that a supply-driven event triggers an exponential price increase because miners get less bitcoin for the same amount of energy. spent and put a little pressure on the selling market.
If we look closely at the data, we can see that the supply shock is generally already in place – the HODL army has already staked its ground, if you will. At the margin, the reduction in supply that hit the market made a material difference to the daily market clearing rate, but the price increase was due to a demand-driven event that hit an absolute no. liquid supply in part for the sale of holders shaped by the depth of the bear market who do not want to part with their bitcoin until the price appreciates by approximately one order of magnitude.
Statistically speaking, long-term holders are the least likely to sell their bitcoin and the current supply is tightly held by this group. People who bought and held bitcoin as the exchange rate dropped approximately 80% are now the dominant part of the free float supply.
The halving reinforces the reality of the inelasticity of Bitcoin supply to changing demand. As education and understanding about the superior properties of bitcoin currency continue to grow worldwide, there is a surge in demand while its inelastic supply makes the price increase rapidly. Until a large part of the convicted holders part of a proportion of their previously dormant stash that the exchange rate crashed from a high fever.
These holding and spending patterns are very well accounted for, with a fully transparent and immutable ledger to document it all.
We know that long-term owners are the ones who put the floor in bear markets, but they also put the tops in bull markets. Many people see the supply shock of the halving as driving the price up, with miners getting fewer coins while still having to sell some to pay their bills while keeping the cost the same. in dollar terms (or the local currency terms). We can observe the change in the net position of miners overlaid with the price of bitcoin and see the impact of their accumulation and trading.
There is a clear relationship between the price of bitcoin and whether miners accumulate or sell, but the correlation is not the same cause and if we include the behavior of the owners for a long time, we can see how much the increasing increases in accumulation and distribution in comparison. of miner sell pressure. The chart below shows the same change in the miner’s net position as above, but it is overlaid with the long-term change in the owner’s net position, both measuring net accumulation and distribution. distribution of the two cohorts in a 30-day period, shown on the same y-axis. If we compare the two, it is difficult to see the change in the position of the miner’s net (red) in relation to the more prominent change in the position of the long-term owners (blue). While the miner selling pressure gets all the press, the real driver of the bitcoin cycle is the convicted holders, laying the floor with accumulation, compressing the proverbial spring for the next wave of future demand.
Long-term owners tend to distribute their coins because bitcoin makes its parabolic rise and then starts to reaccumulate after the price correction. We can look at long-term owner spending habits to see how the long-term owner supply changes which ultimately helps cool the price after a parabolic rise.
On-chain data shows that coins that haven’t moved for more than six months currently have an average spend price that remains relatively flat during the overall bear market – compared to market volatility. -to-market exchange rate. What happens during a bear market is just a reshuffling of the deck: UTXOs exchange hands from the speculator to the convicted, from the over-exploited to those with free cash flow.
During times of market frenzy to the upside, the outflow of coins from long-term holders is greater than the amount of daily issuance, while the opposite can be true in the depths of the bear. – holders to absorb a greater amount of coins than. the amount of the new release.
We have been in a net accumulation regime for two years, while wiping out almost the entire derivative complex in the process. Long-term owners now have coins that did not perform during the Three Arrows Capital explosion or the FTX fiasco.
To show how much conviction the long-term owners of this asset have, we can observe coins that have not moved for one, two and three years. The chart below shows the percentage of UTXOs that remain inactive during these timeframes. We can see that 67.02% of bitcoin has not changed in one year, 53.39% in two years, and 39.75% in three years. While these aren’t perfect metrics for analyzing HODLer behavior, they do show that at the very least there is a significant amount of total supply held by people with little intention of selling them. coin anytime.
In addition to bitcoin becoming more difficult to produce margin, the emergence of the phenomenon is likely to contribute to bitcoin is the trading around it. At this point, most of the world is familiar with bitcoin, but few understand the radical concept of absolute scarcity. With each appearance, the media coverage is bigger and more significant.
Bitcoin stands alone with its algorithmic and fixed monetary policy in a world of arbitrary, bureaucratic fiscal policy gone astray and an endless stream of debt monetization policies.
The halving of 2024, with less than 52,000 bitcoin blocks, will reinforce the narrative of inelasticity of supply, as most of the circulating supply is held by holders who have absolutely no interest in parting with their share. .
Despite the diminishing effect of the halving of terms after each cycle, the upcoming event will serve as a reality check for the market, especially for beginners who feel they have insufficient asset exposure. As Bitcoin’s programmatic monetary policy continues to work exactly as designed, approximately 92% of the terminal supply is already in circulation, and the start of another supply release in the halving event will only strengthen in the narrative of apolitical money and the unique digital scarcity of bitcoin. come into focus sharper.
That concludes the excerpt from the recent edition of Bitcoin Magazine PRO. Subscribe now to receive PRO articles directly to your inbox.