Everyone is only paying attention to the next Bitcoin halving, but ignoring this information

Original: cryptobriefing

Translation source: First.VIP

“Gold’s stock-to-flow ratio is 58, Bitcoin’s is 25.8. After the halving, that number increases to 53.”

There is increasing hype about the upcoming Bitcoin halving, which is set to take place in May 2020, about 190 days from now. It is well known that every four years, the number of Bitcoins rewarded to miners is reduced by half, and the upcoming halving is the third one.

Currently, about 1,800 new bitcoins are produced every day, and miners receive a reward of 12.5 BTC for each block mined, which will drop to 6.25 in May next year.

Due to the lower rewards for miners, they will stop mining or hold onto their Bitcoin until the new price compensates for the costs involved in mining. Similar to other commodities/assets, the supply and demand of Bitcoin will move in tandem, creating a new equilibrium price for an increasingly scarce asset.

Special statement: This article only represents the author’s personal views. First Class Warehouse always maintains objectivity and neutrality and presents diverse information to readers.

The third halving

This will be the third halving of Bitcoin. The first was in November 2012, when the block reward dropped from 50 BTC to 25 BTC, which had a huge impact on the price of Bitcoin. The second was in July 2016, which triggered a bull run that lasted for a year and a half, pushing the price of BTC from around $650 to nearly $20,000, which is still the highest level in history so far.

Of course, many people familiar with the cryptocurrency space see the potential for profit before the halving event and start changing their positions long before the event. The following BTC historical price chart clearly shows the price increase before and after each halving:

(First Class Note: Bitcoin Price History)

Bayern LB has applied the stock-to-flow ratio, which is often used in commodity analysis, to predict the price of Bitcoin after the halving next May. (First Class Warehouse Note: Stock-to-flow ratio = the number of existing commodities / the number of annual production)

Gold’s stock-to-flow ratio is 58, and Bitcoin’s is 25.8. After the halving, that number increases to 53. Based on the model and looking at past price action around halving events, they suggest: “If Bitcoin’s stock-to-flow ratio in May 2020 is factored into the model, Bitcoin’s price could reach $90,000. This means that the upcoming halving effect is not yet reflected in Bitcoin’s current price.”

In fact, Bitcoin isn’t the only cryptocurrency to see supply growth slowing.

Supply growth for a range of altcoins will also decline in 2020-21, with some already declining this year. The stock-to-flow ratios for many major cryptocurrencies have fallen sharply from this year to the next. In theory, if demand remains constant, their prices should rise.

Ethereum ETH

Ethereum does not have a hard supply cap like Bitcoin, but after the Constantinople hard fork was finally implemented on February 28, the block reward was reduced from three ETH to two. In theory, this resulted in a 33% drop in Ethereum's annual new supply, with new issuance of ether at about 4.5% per year.

By 2021, with the launch of Ethereum Serenity, the growth of Ether supply is expected to drop further by 75%. Ethereum Serenity will introduce sharding, PoS consensus, and many other upgrades. Serenity is set to take place in three phases, and once it reaches Phase 3, the issuance of ETH will slow down.

(First Class Warehouse Note: Blue is the supply curve of Ethereum, and orange is the inflation rate)

Ripple XRP

In order to shift to a "more conservative volume benchmark" for XRP, Ripple Labs significantly reduced its token sales in the third quarter of this year, and this downward trend will continue or even intensify. Ripple Labs said that in the third quarter of this year, its XRP coin sales were approximately $66.24 million, down nearly 70% from $251.51 million in the second quarter.

This downward trend looks set to continue into Q4 and into next year. Ripple unequivocally stated “Looking ahead to Q4, we will continue to closely monitor volume changes and intend to maintain a similar approach with Q4 volumes comparable to Q3.” That being said, the price of XRP has not responded positively to the reduction in XRP selling.

Bitcoin Cash BCH

According to Coingecko, there are about 153 days left until the Bitcoin Cash (BCH) halving. The BCH halving process follows the Bitcoin halving process, with the reward per block halved from 12.5 BCH to 6.25 BCH.

However, Bitcoin Cash lacks historical data to indicate that its price will be significantly affected by the halving. However, from a structural perspective, the doubling of its BCH stock-to-flow ratio will at least put supply pressure on Bitcoin Cash's price.

Block.one’s EOS

In early June, the EOS community voted in favor of a proposal to reduce the "inflation rate", that is, the annual rate of new issuance of EOS tokens was reduced from 5% to 1%. The block producer reward remained unchanged at 0.25% + 0.75%, which means that more than 4% of EOS will hit the eosio.saving account and be locked (First Class Note: There are some system accounts on the EOS blockchain that can control various corresponding functions. These accounts have a prefix of "eosio.", and the eosio.saving account stores 4% of EOS inflation) . On March 5 of this year, the balance of the "eosio.saving" account exceeded 28.75 million euros (about 108 million US dollars), and it is growing every day (First Class Note: This means that the incremental amount of EOS mined and circulated to the market is getting smaller and smaller) .

EOS experienced a brief price surge throughout the period, hitting a new yearly high. However, the joy was short-lived, and the price of EOS has been falling since then, according to data from Coinmarketcap.

(First Class Warehouse Note: The orange line is the price performance of EOS in 2019, source: CMC)

Monero XMR

Monero’s inflation rate is falling faster than Bitcoin’s. XMR’s overall block reward fell below Bitcoin’s reward for the first time this year, and in August, the daily supply growth was lower than Bitcoin’s benchmark (First Class Warehouse Note: On November 6 this year, Monero’s third halving took place, and the block reward dropped to 2.199023256 XMR) .

Monero’s inflation rate started 2019 at 4.1% and fell to an expected 2.39% at the start of 2020. This makes 2020 a big year for XMR, with its stock-to-flow ratio finally surpassing that of Bitcoin. According to Bitwise analysis, Monero’s annual issuance will drop by 41% by next year.

DASH

Dash’s “inflation” adjustments are more frequent. While Bitcoin’s block reward is cut in half every four years, Dash reduces its issuance by 7.14% approximately every 383 days (a little over a year). Dash’s overall block reward is reduced more frequently but more gradually, making the reduction in supply more subtle and more stable.

Since the maximum total supply is uncertain, DASH mining will continue for 192 years until it takes a year to mine a single DASH. By 2209, only 14 more DASH will be mined, and it will take 231 years to mine the last DASH.

Leaving aside the complex algorithm of DASH supply, DASH's supply growth is expected to decline by about 7% every year or so , which in theory should bring continued upward price pressure if other conditions remain unchanged.

Litecoin LTC

Litecoin saw a ‘buy the rumor, sell the news’ quality during its 2019 halving, with prices rising from $20 at the start of the year to $140 in August. However, there was no post-halving rally, and the bullish price activity leading up to this rise can be explained by renewed bullish sentiment towards Bitcoin.

Conclusion

The crypto market may have matured significantly since Bitcoin’s last halving, but as May 2020 approaches, perhaps another wave of splashes will be stirred. Whether through community consensus or algorithmic design, these major cryptocurrencies, like Bitcoin, will undergo a dramatic change in supply between 2019 and 2021.

As cryptocurrencies are also in the spotlight with the Bitcoin halving approaching, the price gains of these digital assets may lag behind. As Bayern LB said, the halving is not yet reflected in the price in expectations.

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