Saturday, October 1, 2022

Myth: Halvings are followed by price increases

This one is super widespread, and basically everyone points to some variant of this image, which can be found over at investopedia. "It happened twice before, so it'll happen again."

https://preview.redd.it/9h3w08ib0ar91.jpg?width=1600&format=pjpg&auto=webp&s=b61af70979b81a4d09294272a2d024add24e6279

This chart hasn't been updated since early 2020. There were only two halvings at that time which is not a lot of data points.

The ATH in 2017 was $19,140 which is about the same as the price is today. So that third halving has not actually seen a net price increase over the ATH of the previous round. 2/3 isn't a statistically strong record.

We can look at other coins for more data. Litecoin's most recent halving was in Aug 2019 at a price of $90. It then dropped over the next 6 months to a low of $35. It's only $52 now. Here's an old chart of Litecoin from the same source:

https://preview.redd.it/yurpravj2ar91.png?width=1600&format=png&auto=webp&s=e8129e37ca5b3da049bf962930b9a84001f8e676

Some researchers looked at 32 halving events across a bunch of coins and concluded that there was basically no evidence that cryptocurrencies experiencing a halving event outperform the broader market in the months leading up to, and following, a reduction in miner rewards. Here's a chart they produced:

https://preview.redd.it/n3exvbqw2ar91.jpg?width=657&format=pjpg&auto=webp&s=589d8d0868e5c9ed7dee3592cbb588154cbd18e6

Definitely hard to see any difference from halving here.

One thing we know for sure though is that miners make half as much coin after a halving as they do before. That's why it's called a halving. If the price doesn't increase to match, their revenues are cut in half with the same costs. For bitcoin miners, that means no profits at all at today's mining costs.

The next BTC halving is in only April 2024.


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