2024-04-20 17:00:32
[토요기획] The fourth Bitcoin ‘halving’ returns
Bitcoin mining rewards halved… Guarantees scarcity by slowing down coin creation
The highest price is always right after a halving… ‘Strength after halving’ formula may be broken
The three learning effects are reflected in the price… External variables such as the Middle East crisis are also key
Miners whose profitability has been cut in half… Possibility of mass selling of Bitcoin
“A complete Electronic Cash System can be delivered directly one-to-one online. “No financial institutions are needed for this process.”
The founder of Bitcoin, known as ‘Satoshi Nakamoto’, expressed his antipathy toward the traditional financial system from the first sentence of the white paper published in November 2008. It emphasized that Bitcoin was developed for the purpose of currency transactions without going through a centralized financial system. Afterwards, on January 3, 2009, he engraved the British Chancellor of the Exchequer’s bank bailout article on the front page of the London Times into the first Bitcoin block (Genesis block) produced on the blockchain, once again pointing out the problems of the traditional financial system.
The background of Bitcoin can be inferred from the time it was created. Bitcoin was created immediately after the subprime mortgage crisis in the United States in 2008. Banks faced a liquidity crisis as a huge bubble appeared in the real estate market due to reckless lending by financial institutions and then collapsed, causing a flood of people who were unable to repay their loans. The U.S. investment bank Lehman Brothers declared bankruptcy, and the dollar liquidity crisis spread to financial institutions in other countries, ultimately leading to a global financial crisis. At that time, trust in the dollar reserve currency system and financial system had collapsed. As such, at the basis of the birth of Bitcoin lies distrust in the centralized financial system and fiat currency issued by the state.
● Reduce Bitcoin supply to ensure scarcity
One of the devices installed by Satoshi to differentiate Bitcoin from existing fiat currencies is ‘halving.’ Halving refers to the phenomenon in which the Bitcoin mining reward paid for each blockchain block that is successfully mined is reduced by half. To obtain Bitcoin, you must solve a difficult math problem created by Satoshi, and this process is called ‘mining’. For mining, a high-performance computer is essential, and a large amount of power is consumed.
When Bitcoin first began to be distributed, the reward a miner received for mining one block was 50 Bitcoin (BTC). This reward is halved when the 210,000th block is mined. Until now, this period has occurred approximately once every four years, but the half-life cycle is not set at four years. Over the past three halvings, including November 28, 2012, July 9, 2016, and May 11, 2020, mining rewards have decreased from 50BTC to 25BTC, 12.5BTC, and 6.25BTC.
Satoshi limited the total number of Bitcoin issued from 2008 to 2140 to 21 million. In a situation where Bitcoin supply is fixed, halving plays a role in ensuring Bitcoin’s scarcity by slowing down the rate at which new Bitcoins are created. Ultimately, Satoshi wanted to make Bitcoin a ‘deflationary currency’ whose value increases over time. Kim Jong-hwan, CEO of Blocko, said, “All resources on Earth, such as gold and oil, basically have the characteristics of deflationary currencies, but the only thing that is not like that is legal currency, which the government can print infinitely.” He added, “Satoshis are becoming more and more valuable.” “He is the one who questioned the fact that we are paid for our labor in devalued fiat currency.”
● Immediately after three halvings, all-time highs were reached each time.
In each of the past three halvings, the price of Bitcoin continued to soar. According to the law of supply and demand, the price of Bitcoin can be seen to have risen as the supply of Bitcoin has decreased. In addition, expectations that the price of Bitcoin would rise following the halving were added to investment demand, and the price of Bitcoin reached an all-time high every time immediately after the halving.
According to global virtual asset exchange Binance, the price of Bitcoin was about $12 at the first halving on November 28, 2012. Six months later, on May 28, 2013, Bitcoin soared to $130, more than ten times higher. Bitcoin, which was $660 on July 9, 2016, the second halving, rose to $900 six months later on January 9, 2017. Comparing the lowest point (January 2015, $164.01) and the highest point (December 2017, $20,074) before and after the halving, it showed an increase of 12,000% over 1,068 days. The same thing happened during the third halving. On the day of the halving, May 11, 2020, Bitcoin was about $8,600, but half a year later it jumped to $15,700, up about 100%.
However, after each halving, Bitcoin reached an all-time high and then went through a long period of decline. During the first halving, the price fell by about 80% in 87 days after reaching its peak. During the second halving, we also had to endure a 51-week bear market after hitting the highest point.
● The half-life learning effect made known to people all over the world
Bitcoin’s fourth halving is expected to take place on the 20th. There are various opinions regarding the halving, which is usually considered a good news, but this time, the prevailing view is that the price increase effect due to the reduction in supply will be minimal. Rather, the market is paying more attention to external variables such as Bitcoin spot exchange-traded fund (ETF) and the macroeconomic environment.
According to CoinMarketCap, a virtual asset information site, as of the 17th, about 19.6 million bitcoins out of 21 million are in circulation. With more than 93% already issued, it is expected that there will be no significant impact on the price even if the new supply is reduced from 6.25 BTC to 3.125 BTC. This means that the impact of the halving is different from, for example, the mining reward being reduced from 50 BTC to 25 BTC in a situation where there are 20 million Bitcoins left to be issued in the market.
In addition, since most market participants are aware of the halving after three halvings, it is highly likely that the effect has already been reflected in the price. “The Bitcoin halving event and its effects are already predictable,” said JP Morgan analyst Nikolaos Panigirzoglu, adding, “The effects are well reflected in the current Bitcoin price.” Kim Gap-rae, a senior researcher at the Korea Capital Market Institute, pointed out, “The possibility that the halving effect has been reflected in prices has increased, and the supply and demand effect of the halving itself has decreased, but in a situation where various economic uncertainties dominate, the variables that investors must consider have increased significantly.” .
● ‘The fourth half-life’ dominated by uncertainty
While some analyzes say that this halving creates a positive environment for price increases, such as the approval of Bitcoin spot ETF, there are also concerns that geopolitical risks originating in the Middle East are increasing uncertainty in the virtual asset market.
According to Reuters, Hong Kong’s Securities and Futures Commission (SFC) approved Asia’s first Bitcoin spot ETF on the 15th, about five days before the halving. Since the U.S. authorities approved spot ETFs on January 10, about $59 billion (approximately 81.7 trillion won) of funds have flowed in to date. It is estimated that up to 34 trillion won will flow through Hong Kong spot ETFs. Spot ETFs are considered a trigger for price increases along with halving because they explode demand. Brad Garlinghouse, CEO of Ripple, said, “While supply is decreasing due to the halving, institutional demand is increasing with spot ETFs.” He added, “The market capitalization of virtual assets will increase by 86% this year, exceeding $5 trillion.”
In fact, the trading volume in the virtual asset market has increased noticeably in the past month. According to The Block, a virtual asset analysis company, last month’s trading volume on virtual asset exchanges around the world was $2.48 trillion, more than double that in February ($1.17 trillion). On the domestic exchange Upbit alone, trading volume last month was $221.4 billion, approximately three times that of the previous month ($81.3 billion).
On the other hand, the growing uncertainty in the virtual asset market due to heightened tensions in the Middle East due to Iran’s recent attack on Israel may act as a factor in the price decline after the halving. Bitcoin, which was moving in the $66,000 range as the possibility of an Iranian airstrike was mentioned, plummeted more than 7% on the news of the start of the airstrike, falling to the $61,000 level. Since instability in the Middle East region has a significant impact on the global economy, including oil prices and exchange rates, the price of Bitcoin is bound to be affected.
Given that the Bitcoin drop just before this halving is the lowest drop just before the halving in history, some predict that the extent of Bitcoin adjustment in the future will not be as large as before. According to CoinMarketCap on the 16th, Bitcoin was traded at $63,441.96 as of 9 am on this day. This is a price drop of approximately 13% from the highest point recorded last month ($73,079.37). Bitcoin has shown a downward trend just before halving in the past, falling from as little as 28% to as much as 62%. Regarding the fact that the decline just before this halving was smaller than in the past, virtual asset analyst Rect Capital said, “The extent of the correction (of Bitcoin this time) will not be as large as the previous cycle,” and “(As of mid-March) the correction period could last up to 77 days.” “It can be done,” he analyzed. The view is that after the arrival of the halving period, there may be an upward trend after a month of adjustment.
● The movement of unprofitable miners is also a variable.
The position of miners, who are the entities most directly affected by the halving, is also expected to be an important variable. For investors, halving is an important factor in maintaining the value of Bitcoin, but for miners, it can act as a factor in worsening profitability as mining rewards are cut in half overnight.
Typically, when the supply of Bitcoin decreases due to halving and the price rises, competition in mining intensifies. However, as everyone jumps into mining with computers with better performance, mining difficulty increases as the market overheats. As a result, the profitability of miners decreases. According to BTC.com, a virtual asset miner group site, Bitcoin mining difficulty has increased by about six times since the third halving.
On the 14th (local time), Bloomberg News reported that miners are expected to suffer losses worth $10 billion (about 13.8 trillion won) due to the fourth halving. In addition, in the case of this halving, survival of mining companies has become more difficult due to competition to secure power with large artificial intelligence (AI) companies that are building large-scale data centers.
Until now, miners have signed multi-year contracts with power companies and received power at a fixed price. However, there are observations that if big tech companies such as Google, Amazon, and Microsoft (MS) flock to the electricity market and begin to raise prices, the burden of mining costs will increase rapidly. “The AI industry is willing to pay three to four times what Bitcoin companies paid last year,” said David Foley, co-managing partner of the Bitcoin Opportunity Fund, which has invested in mining companies. “This is happening all over the world.” “It is a phenomenon that exists,” he said.
In the industry, there is also talk of the possibility that small-scale mining companies will be pushed out of competition starting from this halving, or that miners who have difficulty operating their businesses will sell Bitcoin on a large scale to cover business expenses. Matthew Kimmel, an analyst at CoinShares, an asset management company focused on virtual assets, said, “In a situation where profits are plummeting overnight, survival will be greatly determined depending on each mining company’s strategic response method.” He added, “Confidence in future mining profits is low. “If we don’t, we have no choice but to be kicked out of the market,” he said. “It is very likely that Bitcoin miners will cash out Bitcoin to make maximum profits ahead of the halving in April,” said Joao Wedesong, an analyst at CryptoQuant, a blockchain data analysis company, in a report. “This is due to increased selling pressure.” “This may lead to price adjustments,” he warned.
Reporter Shin A-hyung [email protected]
2024-04-20 17:00:32