Viewpoint | Reveal the truth of Bitcoin's "halving market", will history really repeat itself?

Source of this article: Financial

Author: Cheng Zhipeng

The expectation of "halving the market" originates first from an economic basis. In microeconomics, based on the premise of a rational person, it is believed that market supply and demand are the direct factors that determine market prices. Market prices are positively related to demand and negatively related to supply. With constant demand, prices decrease when supply decreases, and prices decrease when supply increases. Bitcoin's "halving rewards" intuitively led to a reduction in supply, and thus generated expectations of price increases. In fact, in the history of more than ten years of Bitcoin, the performance of the market seems to confirm the fact of "halving the market", and it can also meet the basic economic theory of supply and demand.

However, if we consider this issue further, the premise of reducing supply and increasing prices is that the demand for bitcoin comes from the same demand. Where does the demand for Bitcoin come from?

From the perspective of traditional commodity trading, many professional analysts will analyze the upstream and downstream conditions of the entire supply chain, and judge the trend of commodity prices. For example, copper, rebar, soybeans, cotton, etc. can be traced. This analysis method is generally called the fundamental analysis method, and it is the most common and basic analysis method in traditional finance. But this method started to fail when used on Bitcoin. The reason is simple, like precious metal steel and agricultural products, people can easily find the scenes of their needs, but where is the actual demand scene of Bitcoin? There is no clear statement yet.

One of the most common demand statements about Bitcoin is to use it as a safe-haven asset. Bitcoin is scarce, it can be transferred from point to point and cannot be tampered with, and the cost of electricity consumed is extremely high, all of which are its important characteristics. Earlier in the economic crisis in Venezuela, Argentina and other countries, Bitcoin was once the asset of choice for the people in these countries. However, the people of Venezuela will choose bitcoin because of the extreme conditions of government credit collapse. There are not many such extreme situations in the normal environment.

Earlier during the spread of the new crown virus epidemic in China, the price of bitcoin rose rapidly, and the market has interpreted it as an epidemic that stimulated Bitcoin's risk-averse attributes. Since then the epidemic situation in China has been controlled to a certain extent, and when the global epidemic situation began to spread, it happened that the price of bitcoin began to fall again, so there are market opinions that the epidemic situation has dragged down the price of bitcoin.

I have to say, this is a very funny scene.

In fact, Bitcoin does have a hedging attribute from its core characteristics, but its hedging attribute has not yet produced a Paplov effect in the market, which has become an inevitable logical relationship. This is like a beautiful girl who will be chased by many people in truth, and the relative marriage will be easier, but the reality is that many beautiful girls have become leftovers. Bitcoin's risk aversion has a long way to go before it becomes conditioned in the market.

Of course, some would say that during the previous conflict between Iran and the United States, Bitcoin's hedging properties were very clear, and as the then US President Trump said that Iran did not hurt Americans and the incident would not have an impact Later, Bitcoin also fell. This shows that Bitcoin's risk-averse nature is still sensitive to market news. This situation was indeed the case at that time, but from the perspective of the big market performance, the overall sensitivity of Bitcoin's risk aversion is far from that of gold, and it has not yet constituted the Paplov effect. Live it.

So what exactly is the source of demand for Bitcoin? To get the answer to this question, we need to restore the real situation.

Ten years ago, geeks stumbled upon something technically cool like Bitcoin and started experimenting with their own computers to mine. At this time, the demand for Bitcoin was out of hobby. But when bitcoin bought pizza and had the original price, it could convert value with the real world, so some people began to try to use it to make payments on the dark web. However, as a payment tool, the value of the bitcoin needs to be kept stable. Not suitable for high-frequency payment tools. In this time period, Bitcoin is still an indispensable thing to the real world, and its demand scenario is not prominent.

Until the emergence of mining machinery and related industries.

Previously, Bitcoin's mining machine was a CPU, and later evolved into a GPU. Until 2013, professional mining machines appeared. This is for the real physical industry generated by Bitcoin. The price of bitcoin is rising rapidly, and people can obtain bitcoin through professional mining machines. The process is similar to that of taking electricity and printing money, so professional miners have begun to appear. After the miners configure the mining machines on a large scale, large mines and mining pools appear.

Mine mainly pays for itself. To make money, on the one hand, it needs to boost the price of Bitcoin, and on the other hand, it needs to hold more Bitcoin. From this perspective, the people with the most direct demand for Bitcoin are actually miners.

In addition, as the seller of the mining machine, if the mining machine vendor sells the mining machine, the bitcoin price needs to continue to rise, at least for the miners to see that the startup is profitable, so the seller of the mining machine also needs to find ways to boost The price of Bitcoin. More representative, like Bitmain, which had previously held a large number of digital currencies, increased the difficulty of auditing, and has so far been difficult to list.

Following this logic, we can understand why the price of Bitcoin halved before will skyrocket, and the so-called "half quotation" occurs.

When the reward is halved, the miner's income will be halved accordingly. In order to be able to recover the cost and profit, the mining industry must boost the price and protect its own income. The so-called boost method can be to buy it by yourself or buy more mining machines to work harder and tell the world that Bitcoin is really hot.

From this perspective, it seems that Bitcoin is more like a tool for mining to perform for income generation? of course not.

It is true that although the initial stage of the mineral chain formed around Bitcoin was mining self-selling and boasting that it would raise the price of bitcoin while selling profits, but as the price of bitcoin continued to increase, the entire pattern of the entire industry has changed dramatically.

In simple terms, as the industry around Bitcoin continues to grow, let more people know about Bitcoin, and start trying to join it, the Bitcoin consensus has grown.

Supply and demand are projected in the market by price, and the origin of true value is the consensus of people. Fiat currency represents national credit, but after the collapse of credit, people's consensus was lost, and they began to look for alternatives spontaneously, and the value of fiat currency was annihilated. The safe-haven nature of gold is also not because of its true industrial value, but because of the consensus of people to recognize its safe-haven value.

After the consensus is large enough, the value of bitcoin can really be established, and it will meet the Pavlov effect we have mentioned before, and it will be more sensitive to the market's risk aversion.

In other words, the decentralized currency that Satoshi Nakamoto originally conceived was truly widely recognized by the world and was the result of the continuous efforts of surrounding industries. Maybe their original intention is not so grand, but it really created a miracle belonging to this era.

Will the "half market" come?

After revealing the basis of the previous "halving market", we can draw the conclusion that the so-called halving market is because the group led by the bitcoin mining industry consciously raised the price of bitcoin in order to increase revenue, and It is not a market response caused by changes in supply and demand. Will the halving this time still replicate the history of the market?

The news of Jia Nan Yunzhi's listing earlier has made the mining industry more recognized. In the process, Bakkt's futures and options on the Chicago Stock Exchange have been launched, representing that traditional funds must begin to participate in the Bitcoin trading market on a large scale. Should the theoretical boost to Bitcoin's price help?

In fact, this year's halving of the market may be difficult to have an explosive bull market.

First of all, we can look at the following picture. In the initial stage of Bitcoin's production, the price of Bitcoin rose very high. At this time, holding Bitcoin is the most profitable time.

However, as the market value of bitcoin is getting larger and larger, its rise has gradually tilted, and it is no longer as high as the previous historical market.

The reason why this happens is actually because Bitcoin has a certain entropy effect in the process of expanding consensus and increasing market value. In simple terms, it is relatively easy to push the price of Bitcoin from 1 to 10, and from 10 to 100, it takes more than ten times the capital, and from 1000 to 10,000, more people participate in the transaction. More capital is needed. Therefore, the rising rate will gradually weaken in the halving market.

The need for larger entry funds is an important factor. Some people will say that since last year, many traditional capital funds have begun to enter the bitcoin trading market, so the funds are abundant. On the contrary, the involvement of traditional funds has also become a resistance to Bitcoin's continued surge.

It is true that the capital of traditional capital began to enter the market, but although the volume of traditional capital funds is large, the way to enter is not to buy bitcoin cash, but to allocate assets in various financial instruments such as cash, futures, and options. The reason traditional funds do this is because a single instrument cannot meet its goal of sound profitability.

When traditional capital enters any market, multiple financial instruments are used together, and the interlacing of multiple financial instruments will make the market more balanced, and continuous surges and falls will hardly occur. Looking back at the previous end of the 2017 Bitcoin bull market, it began when the Chicago Board of Trade launched futures. When the market funds cannot continue to support the rise, they will turn their heads, and in the process of falling, the futures contract can be used to make short arbitrage, and the short market will exacerbate the decline in the spot market.

In the previous halving market, the Bitcoin trading market has not yet produced such large-scale derivatives applications. When the background becomes more and more complicated, then dialectically looking at historical market conditions, we can know that the advent of this "halving market" will not be so smooth.

In addition, we use Fisher's formula to deduct the logic of Bitcoin's rise. According to the relationship described by Fisher equation MV = PT, the transaction currency amount multiplied by the circulation speed is equal to the commodity weighted average number times the transaction amount, then M = PT / V, and the bitcoin transaction currency amount is regarded as M as the total market value, then It can be known that when V is the lower the velocity of circulation, its price will be higher.

This model tells us a simple and rude truth. When there are fewer Bitcoins in circulation in the market, and the more people there are, then the price of Bitcoin will be systematically boosted. So is there a lot of people in TunCoin? Direct data is not currently available, but according to the latest data on February 20, the total number of Bitcoin addresses is 615,463,205. There are currently 28,728,292 addresses with a balance above zero. Of these 28 million addresses, only 788,101 addresses have at least one Bitcoin balance. There are 154,689 wallet addresses with a balance of 10 or more Bitcoins. There are only 16,247 wallets with a balance of 100 Bitcoins or more.

Although this set of data allows us to see an increase in the number of wallets, most wallets have very few bitcoins. This data tells us that most bitcoins are in the hands of a few people, and very few people can truly tune them. So from the perspective of the ratio of wallet addresses, Tuncoin is not optimistic.

What signals should the "half market" pay attention to?

Although the above shows that the explosive bull market of Bitcoin's "halving market" is not optimistic, slow bulls can still be expected. Why?

Let's start with mining. We have previously described the importance of mining to support the price of bitcoin. Then this year's halving of the market will have a very serious problem. After bitcoin is halved, many mining machines will be in danger of being eliminated before. Old Miners also need to quickly iterate the mining machine. During the process of elimination and iteration, the computing power will fluctuate greatly, and the price of Bitcoin may also fluctuate during this period.

And the head miner has already launched a more powerful new generation of miners to deal with it. Then return to the original logic. No matter how the rise of Bitcoin encounters the interference of traditional capital using financial instruments, the general direction will still rise. of. It only affects the increase in bitcoin rewards after halving.

Therefore, with the same idea of ​​constant change, people can participate in Bitcoin fixed investment, or purchase mining machines to participate in mining. In this way, they can participate in Bitcoin investment with the most stable attitude.

Secondly, another important condition just mentioned is the issue of the currency. The Bitcoin contract has a relatively natural advantage, that is, it does not require rigid delivery, so the impact of the contract market on the coin can be temporarily ignored. What is more realistic is that after the miner's output is halved, the income is reduced, because the basic survival needs will sell coins, which is the case in most cases. To solve such problems, Bitcoin mortgage lending business needs to be more mature.

In fact, this year's DeFi-related business has developed very well, but DeFi's concept is too avant-garde. For the business of token lending, decentralized exchanges can do it, and it is even more simple for miners. Then, if the business of deposit and borrowing can be improved this year, then it can be expected that the number of people who start to deposit money will start to increase. This perspective is more intuitive than looking at the bitcoin wallet address, because many people can also put coins on the exchange and participate in some financial management projects.


Bitcoin's "half price" may come in another pose that we never expected, but there are many poses to meet it.

Mining will be an industry worth focusing on this year, and there are many ways to get involved. This is something unimaginable in the traditional financial era, because you can't move a banknote printer to your home. Similarly, when investors invest in coins, they can take advantage of borrowing.

To answer our initial question, Bitcoin's "half price" will not repeat itself in history.

The entire industry is creating new history.