Bitcoin price has been halved from its high point. Is the extended bear market coming after the sharp rise after halving?

The cryptocurrency market continued its decline last week, in line with the overall decline in the stock market. Data shows that as of May 16, the price of Bitcoin has basically remained around $30,000. The price of Bitcoin has fallen by more than half since it hit a record high of $67,802 in November last year. At the same time, Glassnode data shows that the number of BTC addresses in a loss state (7-day MA) has reached a record high of 17,968,489.667.

However, despite the market downturn, the number of addresses holding more than 1 BTC reached 840,475, a record high. Market analysts believe that many funds began to absorb chips during the downturn.

Trend impact of previous halvings

It is worth noting that it is already halfway through the last Bitcoin halving on May 11, 2020. Statistics show that past Bitcoin halvings have all led to significant price increases.

After the halving in 2012, the price of Bitcoin jumped from $12 to $1,213 the following year. The second halving in 2016 was $647, and then to $19,800 a year later, but fell back to $3,276 a year later, still 506% higher than the halving price. The last halving of Bitcoin was in May 2020, when the price was $8,787. By 2021, the price had reached more than $68,000, and the price has now fallen by more than half.

(After the halving in 2012 and 2016, the price rose and then fell)

(The market rose and then fell after the 2020 halving)

Trader Fredrik Vold noted that in the last Bitcoin halving, which took place on May 11, 2020, Bitcoin's block reward changed from BTC 12.5 to BTC 6.25. According to some observers, the halving was one of the triggers for the major bull run that began more than two months later. The run, which lasted until April of the following year, brought BTC to highs of over $60,000. At that time, a major correction halved the price of BTC in about 100 days, laying the foundation for the second leg of the bull run, which took BTC to a new all-time high of around $69,000 in November 2021.

Looking back at previous halvings, it is clear that there is rarely an immediate price reaction to the halving event itself. This is not surprising given that it is a known event that is priced in by the market. What can be seen is that all three past occasions saw a significant increase in price sometime after the halving, followed by a pullback.

Jean Chalopin, chairman of Deltec International Group, pointed out that when we look at past halvings, some patterns are easy to identify, with Bitcoin's price rising sharply after the halving, but then there will be an extended bear market, and then it will rise again at the next halving. We can see that this trend is still continuing.

(Price trends after halving in 2012, 2016, and 2020)

The next Bitcoin halving — which occurs approximately every four years and reduces the block rewards paid to miners on the network by 50% — is expected to occur around March 30, 2024. At that time, rewards will be cut in half from the current BTC, from BTC 6.25 to BTC 3.125 per mined block.

(Bitcoin inflation curve)

The blue line shows the total supply of Bitcoin, which is approaching 19 million by 2022. Bitcoin is approaching its maximum total supply of 21 million (around 2140) every day. The orange line is Bitcoin's inflation rate, which is cut in half every four years (each halving). The current rate is below 2% and will continue to fall with each new block and halving. The known supply, the maximum future supply, and the creation rate over a period of time required to reach that goal are normalized by halvings, making Bitcoin's forecast stable, unlike fiat currencies that are controlled only by the whim of governments and their central banks. This is the main reason why supporters, including Goldman Sachs, believe Bitcoin is a great store of value.

Looking back at past halvings, Bitcoin's price rose sharply after the halving, but then an extended bear market occurred before rising again at the next halving. It is worth noting that the percentage of growth after the halving has declined over time. Following the above trend, Jean Chalopin said that we may have reached the halving increase and the historical highs seen before the next 2024 halving. The question remains whether the 2024 halving will lead to a significant increase, or whether the increase will start before the halving, and investors hope to take advantage of the expected upward pattern. What may eventually happen is a smoothing of the entire pattern. Looking at historical returns, it seems that the huge gains are decreasing with each halving, and this smoothing may be the result. Only time will tell.

The impact of current macro-market and regulation

Back to the current market, as cryptocurrencies gradually become mainstream, the impact of Bitcoin prices is not determined by a single factor. Given that the current market volatility is closely related to the trend of US stocks, government regulation, and macroeconomics, many crypto analysts have also issued warnings.

Carter Braxton Worth, founder of Worth Charting, believes that one of the biggest risks is that Bitcoin falls further, as fixed-income investments become an alternative as the Federal Reserve raises interest rates, and Bitcoin becomes a risk-averse asset. It also does not have any moving average support.

Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said on social media that Bitcoin is unlikely to escape price pressure in 2022 if the stock market falls. Mike McGlone believes that as a highly liquid, 24/7, global trading tool, Bitcoin is becoming a global digital reserve asset and digital collateral. Although Bitcoin and other cryptocurrencies are reversing their decline recently, investment risks are also gradually increasing. Bitcoin has shown some resilience and is currently breaking through the key resistance level of the 50-week moving average. There is still a greater risk of market volatility in 2022, but in most cases, Bitcoin should outperform the Nasdaq 100. If Bitcoin's development trajectory is followed (such as halving of block rewards), the decline in 2022 may end soon.

In addition, cryptocurrency ratings agency Weiss Ratings has warned about the risks of crypto mortgages in the current economic environment in the United States. Weiss Ratings analysts are particularly concerned about the digital banking startup Milo, which offers 30-year mortgages collateralized by Bitcoin, Ethereum or stablecoins. The company requires zero down payment and the loan interest rate is between 3.95% and 5.95%. In a report released on May 3, Weiss analyst Jon D. Markman urged caution on such mortgages, citing the poor performance of stocks and cryptocurrencies this year, the U.S. real estate bubble, rising interest rates, and the Federal Reserve's upcoming policy adjustments.

Recently, at the 2022 International Symposium on Government and Market Economics, Eric Maskin, the 2007 Nobel Prize winner in Economics and co-chairman of the International Society for Government and Market Economics, criticized Bitcoin very harshly and expressed his appreciation for China's ban on cryptocurrencies. Eric Maskin believes that the original invention of currency was to make the exchange of goods easier. Unfortunately, as soon as Bitcoin appeared, we returned to the original direction of barter. Therefore, Eric Maskin believes that as countries create digital forms of standard central bank currencies, the so-called advantages of Bitcoin will no longer exist. Not only that, cryptocurrencies such as Bitcoin may bring great harm. Eric Maskin believes that its potential harm is reflected in two aspects. One is monetary policy, countercyclical monetary policy. Every responsible government will use monetary policy as one of the important tools available, on the one hand to fight economic recession, and on the other hand to fight inflation. When the economy is in trouble, the government will increase the money supply. This makes it easier to get credit, which helps the economy get out of recession. But when the economy is booming, the central bank must shrink the money supply. Cryptocurrency may interfere with good monetary policy. If people use cryptocurrencies such as Bitcoin, the impact of monetary policy will be correspondingly smaller, and it will be more difficult to get out of a recession. Another is related to the banking industry. Eric Maskin said that people who support cryptocurrencies sometimes say that it eliminates the need for banks. People can transfer money safely without banks, and they can save money without banks. However, this view ignores the key role played by banks, which is to evaluate and provide loans to entrepreneurs.

In addition, the recent Terra incident has also led to an escalation in crypto regulation, and foreign media pointed out that this incident may prompt Singapore to impose stricter supervision on crypto companies. South Korean financial authorities have conducted an emergency trend inspection on the LUNA incident and will speed up the formulation of the Basic Law on Digital Assets. An official said that we are paying attention to the overall situation and trends related to the LUNA incident, but the government has no way to take immediate action. South Korean regulators have the power to regulate anti-money laundering in token transactions, but there is no legal basis for intervening in this price crash. In addition, ECB Governing Council member Villeroy said that the disorderly development of cryptocurrency assets poses a risk of "private" fragmentation, including the misnamed "stablecoin". If crypto assets are not regulated, supervised and interoperable in a consistent and appropriate manner across different jurisdictions, it may disrupt the international financial system.

Ashley Alder, chairman of the International Organization of Securities Commissions (IOSCO), said in an online meeting organized by the Official Monetary and Financial Institutions Forum (OMFIF) that there is an urgent need for a joint body responsible for coordinating global cryptocurrency regulation, which may become a reality within the next year. Ashley Alder believes that the growth of the digital currency market and its increasing connection with mainstream finance have made encryption a primary area of ​​concern for global regulators. As the pace of regulation accelerates, the impact on the encryption market remains to be seen.