See you on Matcha Wednesday · Aladdin's view on the halving of mining coins

With the ringing of the 2020 New Year's bell, the halving day of Bitcoin and other mining coins has entered the countdown, and the halving market has also become the focus of daily conversation among coin holders. Some people are looking forward to this upcoming blockchain feast, while others treat it as a waste.

For industry practitioners, the halving is what everyone expects and also heralds unlimited opportunities. Judging from the past Bitcoin K-line data, the halving that happens every four years may be late, but it has never been absent. So as ordinary investors, how should we view this halving and how can we participate in this historic feast?

On January 29th, at 8pm, MXC Matcha had the honor of inviting Aladdin to be a guest in the Matcha community, and had an in-depth discussion with Aladdin on the expectations for the halving of mining coins and how to seize the halving market.

- The following is the transcript of the interview -

Q1. Why do blockchain projects such as BTC, ETC, BSV, and Dash have their output halved or reduced?

A1: This is mainly determined by the block reward rules set out in the project white paper. BTC has completed two production cuts. Since the Bitcoin Genesis Block on January 3, 2009, 50 bitcoins were given as rewards for each block. On November 28, 2012, the first production cut was carried out, and the reward for mining a block every 10 minutes was reduced from 50 bitcoins to 25 bitcoins; the second time was on July 10, 2016, and the reward for mining a block was reduced from 25 bitcoins to 12.5 bitcoins; Bitcoin is halved every 4 years, and the next halving will be in 2020, with the reward from 12.5 bitcoins to 6.25. Similarly, the production cuts of other projects mean a reduction in the reward for each block. The original intention of this production cut design designed by Satoshi Nakamoto in the Bitcoin white paper was to fight inflation and reward early participants in the project.

Q2. What is the halving market?

A2: The halving market is a price increase caused by the output reduction rule. Let's continue to take BTC as an example. Each halving is the starting point of a long bull market. After the halving in 2012, the market gradually became bullish and reached the high price at that time in 2014. After the production reduction in 2016, the price reached the recent high price in early 2018.

Therefore, for the market and miners, the production cuts are likely to indicate the arrival of a bull market. Some friends may ask why the bull market must come because of the production cuts. Here, I only explain my bullish reasons from the perspective of human nature, because humans always make the same mistakes, which leads to history repeating itself, but it is indeed repeating itself step by step. So since we are bullish, we made a series of predictions at the beginning of this year based on the recent market and the performance of various projects. The first prediction was the arrival of the halving of production cuts for projects such as etc, dash, and bsv.

Q3. How to seize the halving opportunity?

A3: I have to emphasize two issues here. The first is that investment is risky, and purchasing commodities such as Bitcoin requires a very high risk tolerance. The second is that time is definitely the key to hedging short-term risks, and long-term value investment in Bitcoin will yield substantial returns.

Then I think the halving can be caught in the following ways:

1. Buying and holding BTC, etc., and DASH in the secondary market is the easiest way.

2. Reasonable use of low-ratio, long-term leverage and hedging risks through contracts and ETFs will bring great benefits to mature traders.

Leveraged trading is the use of a small amount of funds to invest several times the original amount.

A contract is an agreement where the buyer agrees to receive an asset at a specific price after a specified period of time, and the seller agrees to deliver an asset at a specific price after a specified period of time.

ETF is a type of exchange-traded open-end index fund, commonly known as an exchange-traded fund (ETF for short), which is an open-end fund traded on an exchange with variable fund shares. For example, MXC's ETF is essentially a fund, behind which is a certain number of contract positions.

3. Through mining, the blockchain projects that have reduced production are all POW projects. Their biggest feature compared to traditional financial projects is that miners participate in mining. Through electricity, machines, and time costs, they can obtain long-term Bitcoin cash flow below the current market price. The investment income is stable, but the assets are heavy and similar to real estate, which is inconvenient to trade. It is a slow and steady investment method.

Q4. Why was Aladdin able to catch the first wave of rise in dash, etc, and bsv?

A4: Regarding this question, we did a comparative analysis among the eight mining coins (BTC BCH BSV ETC DASH ZEC XZC BEAM) in the halving mining coin section of Mytoken, and selected ETC, DASH and BSV and publicly recommended them on January 10. These three coins lived up to our expectations and performed the best in January. Our selection logic is shared as follows:

First, history is surprisingly similar. In the past, the halving of mining coins was concentrated on mainstream mining coins with contract transactions, so XZC and BEAM were excluded first;

Second, compared to simply cutting production by half, we prefer projects with multiple hot spots;

1. Choose ETC because it is expected to take over the computing power of ETH, and its development will continue to attract market attention as ETH switches to POS. ETC is known as the doomsday chariot. Among the eight currencies that have been halved and reduced in production, it has the smallest circulation volume among the varieties that have opened contracts on mainstream exchanges. It is expected to take over the computing power of ETH when Ethereum 2.0 starts to switch from POW to POS, not only graphics cards, but also subsequent FPGAs and ASICs.

2. This year, anonymous coins and privacy protection have attracted much attention from the market. We chose Dash over Zcash, mainly because Zcash's halving will be delayed until the end of the year, and the project is facing certain financial problems.

3. We chose BSV among BTC, BCH and BSV in the Bitcoin system because: BTC’s halving time is late and its volume is large, so the start-up should be slow and may not be until February. Secondly, BSV’s circulation was smaller at the time and it was going to be upgraded soon. There were many fundamentalist believers, so we did not choose BCH but BSV.

Q5. Review the history of Bitcoin halving and review the halving market

A5: I have already briefly described the two halvings of Bitcoin in the first question. Here we review the market of the first halving. The following images are captured from https://cn.tradingview.com/ BTC/USD trading pair Coinbase exchange real-time data.

BTC production cut in July 2016

As can be seen from the figure, BTC prices began to rise on May 23, two months before the halving, and continued until mid-June. As the halving approached, the price rose in a short period of time, showing a significant premium compared to the computing power at the time. Miners shipped goods and caused the price to fall rapidly. After a period of sideways trading at around US$670, the price fell sharply half a month after the halving. This process is similar to the LTC halving last year, but the difference is that BTC gained computing power support around US$580 after a rapid decline, and the price did not continue to fall. Then, with the increase in computing power and the establishment of ETH consensus that year, the bull market of 2017-2018 began.

The figure below is a comparison table of BTC computing power and price. It can be seen that the price will be consistent with the growth trend of computing power in the long run. When the price is lower than the miners' cost price, miners will have the sentiment of holding on to the currency and waiting for the price to rise, which will push up the BTC price.

Then there is the current BTC price and computing power comparison chart, and the review is basically over. Let us wait and see what will happen to BTC.

Free Q&A session

Q1. There was no policy blockade in the previous production cuts, but there is a policy blockade now. How long can this market trend last?

Each policy blockade is after a production cut, and most policy blockades come from sudden market enthusiasm, such as 9.4 and November 2019. The market is still in a bear market, and the first wave of rise is expected to last for one to two months. It is expected to rise again after many projects cut production and adjust. Refer to the previous fifth question and review the BTC 16-year market.

Q2. What will be the future of mining coins after halving?

You can review the production reduction of LTC last year. In fact, halving is just a bullish expectation. BTC has halved twice, and each time after halving, it was a slow bull market that lasted for 1 year. Not all times have the 17-year market, but the market will always give everyone opportunities. The choice of miners after halving is the basis for future market development.

Q3. Let’s talk about ETC, which is what everyone is most concerned about at the moment. What do you think the price will be in the future?

We estimate that it will reach around $20. After all, ETC is about to halve, and BTC, DASH and other projects will also reduce production, so there will be no lack of market enthusiasm.

Q4. Will the halving trend continue until the halving day? Will it be redeemed in advance and then adjusted back or will it continue throughout the past?

The halving market generally does not last until the halving day. I have made it clear in the previous BTC review: the production was reduced in July, and the previous peak was reached in June. The reason is that the halving increase is expected, and the price will always return to the computing power curve. The growth of computing power is the investment in actual machine technology, so the price will definitely not rise or fall sharply.

Q5. Can you share with us the future market trends of BSV?

The price of BSV is difficult to estimate because the project has many unexpected events and the parties acting in concert may have a high degree of control. It is okay to be bullish based on the expected production cuts, but there is no estimated reference for the target price and market value.