Bitcoin mining output halving effect hypothesis: the number of bitcoins that can be purchased per dollar will decrease exponentially over four years

There are still 5 months until Bitcoin halving. Is there a causal relationship between halving and bull market?

Historically, Bitcoin halving and bull market overlapped in 2012 and 2016. Therefore, the cryptocurrency circle has concluded the connection between halving and bull market.

People in the cryptocurrency industry are eager to see whether the Bitcoin halving will bring about a bull market, but there is almost no strict logic. People outside the cryptocurrency industry laugh at us. And this year, people in the cryptocurrency industry began to doubt themselves as Bitcoin’s small mid-year rise in 2019 suddenly fizzled out.

In the computer world, is Moore's Law a similar law? Moore's Law is definitely not a science, but it has an amazing effect that is consistent with history.

Moore's Law: The amount of computer performance that can be purchased per dollar will double every 18-24 months.

Bitcoin halving effect: Bitcoin production is halved every four years, and the price increases exponentially.

To better match Moore's Law, I will change the Bitcoin halving effect: the number of Bitcoins that can be purchased with one dollar will decrease exponentially over four years. We call this the Bitcoin halving hypothesis.

Does the Bitcoin halving hypothesis have any underlying supporting logic?

In economics, the law of supply and demand is an iron law and the cornerstone of economics. The Bitcoin halving hypothesis is apparently supported by the law of supply and demand.

The production of Bitcoin is halved, that is, the supply is halved. Even if the demand remains unchanged, the price will double. But this is only on the surface.

The supply of Bitcoin in the buying and selling markets is not just the output of mining. It is more about the selling pressure of historical inventory and the increase in the issuance of coins caused by the partial reserve in the lending market. However, these two types of selling pressure cannot be counted.

As early as 2009, the historical stock of Bitcoin started from 0, with one block every 10 minutes, 50 BTC issued, 7,200 BTC issued every day, and a linear increase. The daily increase ratio was very high, from 0 BTC to 10.5 million BTC in 4 years. In 2012, the first halving took place, with each block reduced to 25 BTC, 3,600 BTC per day. In 4 years, the total amount of Bitcoin increased from 10.5 million BTC to 15.75 million BTC. Now, more than 18 million BTC have been mined, with 1,800 BTC produced every day, accounting for less than one ten-thousandth of the stock.

In terms of price, before the halving in 2012, the price of Bitcoin was below $10. To digest 7,200 BTC per day, a maximum of $72,000 was needed, and a maximum of $7.2*365=26.28 million was needed per year. After the halving, the price of Bitcoin rose by more than 100 times, once rising to the level of thousands of dollars. Most of the time, it was a few hundred dollars, calculated at $500. On average, it would cost $1.8 million per day to take over the selling pressure of miners, and $657 million per year.

Now the price of Bitcoin is $7,500. The maximum amount of funds needed to absorb the miners' selling pressure is $13.5 million per day, or $13.5 million per year, which is a huge amount of money.

If the halving occurs after May, and the market demand for buying coins to take over the miners' selling pressure remains unchanged, there will still be $49.2 billion of inflows per year. Assuming other conditions remain unchanged, the price of Bitcoin should at least double, because the miners' output has been halved to 900 BTC per day.

This is how the Bitcoin halving hypothesis is verified from the law of supply and demand.

But obviously, this explanation requires too many assumptions. The most false one is to assume that the supply of Bitcoin market is composed of mining output, which is obviously not true. With the occurrence of halving, the historical stock of Bitcoin is increasing, and the proportion of mining output in the total is decreasing. The market supply will mainly change from mining output to other things.

We can change the perspective to verify the Bitcoin halving effect hypothesis. The two halvings in 2012 and 2016 successfully verified the hypothesis, and it is relatively reasonable to explain it according to the law of supply and demand. However, considering that the supply of the Bitcoin market is no longer mainly from mining output, the law of supply and demand cannot be used in this way for the halving in 2020.

Considering that the final total amount of Bitcoin is fixed at 21 million, it is now close to the total amount. But the number of users is almost unlimited. What if the entire Bitcoin system moves towards promoting the number of users, so as to promote the re-verification of the Bitcoin halving effect hypothesis?

We may be able to find some lessons from Moore's Law.

The reason why Moore's Law is so famous is mainly because it is very consistent with history and lasts for a long time, but it is so unreasonable that it makes everyone feel incredible.

But we can deduce why Moore's Law is so effective from the Anti-Moore's Law. The Anti-Moore's Law was proposed by Eric Schmidt, the former CEO of Google. He said: If an IT company sells the same number of products today as it did 18 months ago, its turnover will be reduced by half.

Anti-Moore's Law means that if Moore's Law is correct, you will die if you don't keep up with it. Moore's Law is so famous that it forces all companies in the entire computer and Internet industry chain to move forward around Moore's Law. All companies must meet the 18-month deadline to improve their product performance, expand their user base, and so on. When everyone does this, Moore's Law is spontaneously verified.

The only way for us to stay where we are is to run forward as fast as we can. What a painful realization.

The rise and fall of Bitcoin mining companies in history perfectly confirms the "Anti-Moore's Law". As early as the end of 2012, Avalon mining machines were mass-produced, and Pumpkin Zhang directly had the ability to attack the Bitcoin network with 51%. In 2013, Bitcoin's fear of 51% changed to Ghash.io, and the currency circle was still clamoring to modify the consensus. Next, Baked Cat stood on the stage of history. In 2013 and early 2014, Baked Cat became a myth in the Bitcoin circle. In 2015, the myth changed to Bitmain. Bitmain has always dominated the mining industry's leading position and persisted until 2018. In 2018 and 2019, Bitmain encountered a crisis and began to give up the top in the mining machine market share. In 2019, Avalon went public.

In the past ten years in the cryptocurrency industry, no company has been able to maintain its long-term business. Exchanges are also changing. Mt.gox, which was once at its peak, has long since gone bankrupt. The three major Chinese exchanges, Bitcoin China, OK, and Huobi, once occupied the top position in the world. Binance became a god after China's 94 policy. After the compliance of Coinbase in the United States, it has suddenly made the cryptocurrency industry look up to it. In 2019, is Matcha the most powerful?

Perhaps, the Bitcoin halving effect hypothesis will be verified by transforming from the law of supply and demand to the anti-Bitcoin halving effect.

Anti-Bitcoin halving effect hypothesis: If a cryptocurrency company maintains the same market size today as it did four years ago, its turnover will drop several times.

4 years is the deadline for a cryptocurrency company. You must catch up with the market growth rate stipulated by the halving effect hypothesis, otherwise you will die.

In four years, all companies need to be fully prepared. Mining machines need to be upgraded, exchanges need to increase customer service, wallet providers need to add servers... Everyone needs to increase resource allocation around this time, which in turn promotes the verification of the halving effect.

If you are in the cryptocurrency world, and your turnover and wealth do not grow according to the Bitcoin halving effect hypothesis in four years, you are a loser.

I am like this. Five years ago, I was writing articles, but few people read them and I made no money. Now I am still writing articles, but still no one reads them, and I make even less money. My costs have increased a lot. This year I am very anxious and don’t know what to do. So I simply stopped in May and thought about life. After thinking for half a year, I found that I don’t know what I can do. Can I only accept the fate of a loser?

Hey, it’s up to you, colleagues, to verify the Bitcoin halving effect hypothesis.

Author: Huang Shiliang

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