A recent panel at the Swan Pacific Bitcoin Festival was aptly titled: “Are price cycle halvings bullshit?” During the discussion, moderator and Bitcoin Layers founder Nik Bhatia asked Marathon Digital CEO Fred Thiel, Swan CIO Ralph Zagury, and Swan Product Manager Andy Edstrom share their thoughts on whether the Bitcoin halving is truly a bullish event or just another narrative for novice investors to buy into.
While the panel’s headline may be off-putting to some, the investigation is of great interest to all types of Bitcoin (BTC) and cryptocurrency investors. The conventional wisdom of many in this space is that the Bitcoin supply halving is a bullish phenomenon that, when completed, will result in a near parabolic increase in BTC price.
Ask any Bitcoin lover what they are most looking forward to in the next year, and if they don’t first mention the chance of spot approval for the Bitcoin ETF, they will probably mention the upcoming halving event.
Previous Bitcoin halving events have coincided with rising bull markets.
But will macroeconomic conditions be ready in May next year?
~ When we have overcome the initial shock of a recession.
~ When a spot BTC ETF is approved.
~ When QE is back on the menu.
Then the planets will… pic.twitter.com/g5dEEKiSMF
— Ecoinometrics (@ecoinometrics) September 6, 2023
While past performance provides some compelling evidence of what could happen in the next halving, every investor should probably question the long-held claims and price expectations for a high-volatility asset like Bitcoin more often – especially considering the number of bearish events have occurred in the last two years.
At the start of the discussion, moderator Nik Bhatia chimed in and asked, “Is the halving the main driver of Bitcoin price?”
Thiel quickly responded with:
“In this cycle, no, I think it’s liquidity”
Zagury agreed, adding that “flow is really what drives the market, so by definition there is nothing in the halving that should affect price.” Interestingly, Edstrom took a different position by suggesting the following :
“I think the halving is still bullish and we can debate how big this effect is, but yes, I think it is still important for price.”
All panelists, including host Bhatia, seemed to agree that while the halving might bring some market-moving capacity, this could diminish over time. According to Bhatia,
“The halving impacts supply. Over time it becomes less and less important and has no impact on demand. But from a psychological perspective, maybe we could play devil’s advocate.”
The halving of hype and hope only happens in the minds of investors
Panelists at the “Are Price Cycle Halvings Bullshit?” Panel. Source: Swan Bitcoin YouTube
Speculation is essentially the root of all investing, and while Zagury and Thiel believe investors are attributing more hope than fact to the predicted impact of the Bitcoin halving, Edstrom sees the event as reflecting a “psychological feedback loop.” come to the demand side.”
“We believe the Bitcoin price will be higher in the future and, more broadly, we apply an investment perspective to our investment in Bitcoin.”
Another belief held by many investors for years is the role that derivatives play in determining the price of Bitcoin. Bhatia asked whether derivatives played a larger role than spot trading in impacting Bitcoin’s price action, and Zagury said:
“The reality is that the data points we have regarding the halving are not enough to come to any conclusion. If you look at the Bitcoin price historically, we have the entire price data set, and you try to find distribution patterns of how returns actually work, then you see very quickly that there are a lot of external correlations, which means that price depends on time and also on previous performance.”
According to Zagury, “One particularly strange thing about Bitcoin, and I think there is no other asset class of its kind, is that most of the time Bitcoin moves sideways, measured by the number of days, it is either sideways or down.”
Related: BTC price models suggest a target of $130,000 after the Bitcoin halving in 2024
Zagury says the time Bitcoin spends trading in a range or downtrend “makes hoddling really difficult because that means you’re going to have months and years of pain and days of glory.”
“By definition and based on historical price distribution, it is extremely difficult to be a hodler.”
Going back to the original question about what role derivatives play in Bitcoin price discovery, Zagury said:
“When we talk about derivatives, the first thing we talk about is probability. It is impossible to draw a conclusion about what will really happen to the Bitcoin price. That’s the first thing you can infer from looking at historical returns. Coming back to the halving, the fact that it is actually related to the outside world is sometimes strongly related, especially in times of low liquidity. A small move that pushes the price higher, the marginal sellers out there will turn to the short term sellers and then the price will rise significantly. That explains why the price is rising very, very quickly.”
The focus will be on liquidity
Although the impact of the Bitcoin supply halving on BTC price was ignored, all panelists expressed their positive longer-term positive outlook for Bitcoin’s value.
With liquidity being the agreed upon future price catalyst for Bitcoin, Zagury said:
“I am very optimistic. I think we’ll see that soon because liquidity has come down and we’re seeing these things start to happen and it won’t take much before we see a very big move.”
Asked when and how that all-important liquidity will return, Edstrom pointed out that 10-year U.S. Treasury bonds are rising above 5%, that potential regional bank failures are similar to those seen six months ago, and that the number of banks holding Treasury bonds with long term, increasing debt losses are all signs that sooner or later there could be a U-turn by the Federal Reserve and a return to quantitative easing.
This article does not contain any investment advice or recommendations. Every investment and trading activity involves risks and readers should conduct their own research when making their decision.
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