Halve = rise? Research tells you that the truth does not seem to be the case

A halving means that the rise seems to be a general consensus in the cryptocurrency market. However, a recent study found that the price of Bitcoin and Litecoin is not affected by the halving of block rewards.

Bitcoin crypto with fire isolated on black background

“half the skyrocketing” is because we deliberately establish a causal relationship?

People want to find causal relationships in everything. But the encryption market is the opposite of what people think, it is a near-perfect machine made up of randomness and volatility. Despite this, the desire for causality has led the mainstream media to like to build theoretical analysis around possible price changes.

Forbes wrote: "Bitcoin prices fell after the Libra hearing, and then rebounded." According to Reuters, "mystery orders" triggered a bull market in 2019. QZ said that the USDT issuance is a potential factor in the recent recovery of Bitcoin.

However, even a logically based phenomenon may not allow people to find the causal relationship. Encrypted currency enthusiasts generally believe that halving block rewards will lead to price increases. At least, it is logically reasonable. If the miners receive a reduction in block rewards, the seller’s pressure will decrease. A reduction in supply should result in a corresponding price increase.

The effect of “half the skyrocketing” seems to be the most prominent in the Litecoin. Starting at a low of $22 in December 2018, LTC soared 480%, reaching a high of $130 in July, making it one of the few assets to outperform Bitcoin in the bull market. Most media attributed the LTC price increase to the upcoming halving. However, the data seems to show that we are wrong.

Research on the price impact of halving

Nico Cordeiro and Ava Masucci of the cryptocurrency market engineering and operational trading algorithm research firm Strix Leviathan found that halving does not have a very large impact on the price of cryptocurrency.

The researchers analyzed 32 halvings of 24 cryptocurrencies and compared them to the overall market benchmark. The market performance of each currency was evaluated before and after each halving, and compared to cryptocurrencies that did not experience a halving event within the same time frame.

“The price difference and seemingly random results before and after halving indicate that the underlying factor driving prices is not a shift in supply and demand dynamics.”

Strix Leviathan then performed a vertical comparison of the halved currency. Historically, price changes should increase during the halving period. However, the researchers found that cryptocurrencies that experienced halved events did not experience large fluctuations or returns before or after halving.

“We found that the distribution of returns for the halving period of the asset and the time period other than halving indicates that they have no statistical difference at the 99% confidence level. In other words, we have not found evidence to reduce A half event can cause an abnormal pricing behavior."

The researchers concluded that:

“We have not found any evidence that cryptocurrency assets that have experienced a halving event will outperform the market before and during the miners’ reduction.”

"Although this statement is certainly feasible as a logical theory, it is equally likely that we are facing an illusion of effectiveness, and the previous bull market rise is nothing more than an increase in speculative levels in the asset class."

Survive in a world full of noise

Ultimately, the cryptocurrency market will be dominated by people trying to establish causal relationships for most random market movements. “The world of financial markets is full of thousands of logical and ideological theories, but most of them are not true in practice,” Cordeiro and Masucci said.

Those who invest in Bitcoin and other cryptocurrencies need to be wary of this prejudice. The reason why "top-level" crypto-traders can get so much revenue may not be because of their skill, but may be purely for luck. Many market changes caused by large news events may be just random. Conspiracy theories, such as Tether manipulating prices to push bitcoin up, may mistakenly use causality to try to prove this theory.

In a world full of noise, it is important to maintain a skeptical attitude. However, if you think that Bitcoin (and other cryptocurrencies) will continue to rise, then the most reasonable strategy may be to make a fixed vote for a long time, ignore the noise and grasp the long-term trend.