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"Halving the price of currency" is a false proposition?

Time : 17/06/2022 Author : dbyplc Click : + -
        If we go back to two weeks ago, I think we are still immersed in the halving of the market, and we never expected that the crisis would come to us so violently and quickly. It is about 60 days before bitcoin is halved. Bitcoin will be halved at the block height of 630000, and the block reward will be reduced to 6.25 bitcoins. Historically, the halving of bitcoin seems to be an important catalyst to push bitcoin into a new bull market, because every time bitcoin was halved in the past, it had reached a record high. However, in 2020, the black swan incident occurred frequently, the war in the Middle East, and the epidemic suddenly swept the world. In addition to China, the epidemic control was not effective, the financial market suffered a heavy setback, the crude oil plummeted and the gold was also affected, and the US stock market and US debt rarely fell sharply to trigger the circuit breaker.
        On March 12 and 13, bitcoin fell from 7600 points to the lowest 3800 points, and the "price reduction" has been completed. Other mainstream digital currencies have been on the road of "returning to zero", completely breaking the confidence of bulls. Everyone wondered whether the halving market was over? Or is there no so-called halving market at all? To answer this question, we should first understand what is halving, and then analyze whether halving has an impact on the market. Let's first do a popular science to understand what the mining reward is halved. Although the production of BTC, BCH, BSV, etc and other POW coins will be reduced this year, here we only take big brother bitcoin as an example.
        We know that the total number of bitcoins is 21 million and will never be issued. So many bitcoins are not directly issued, but "rewards" obtained by doing a large number of hash operations. That is, what we often call "mining" (the working principle of bitcoin is involved here, and will not be summarized here) are generated one by one until all 21 million bitcoins are dug out. When designing this function, Satoshi Nakamoto, the founder of bitcoin, on the one hand, in order to stimulate the enthusiasm of early participants, and on the other hand, in order to increase the price of bitcoin, he designed the rule of reducing the mining reward by half every four years. In the first four years of bitcoin's birth, 50 bitcoins can be obtained as rewards for successfully digging blocks; After the first halving in 2012, the reward for successfully digging blocks was changed to 25; It is expected that may this year will be the third half of bitcoin. After the half, the mining reward will become 6.25.
        What impact will this have? We can roughly calculate that the bitcoin network will dig out 144 blocks on average every day, and the reward of each block will be reduced by 6.25 BTCs, that is, the output of 900 BTCs will be reduced every day. According to the current spot market, according to the statistics of non small numbers, the daily BTC turnover is about 2 million. The impact of reducing 900 BTCs per day is very small, but the reduction of 900 BTCs per day is nearly 330000 in 365 days a year, which is a considerable amount. Therefore, in terms of market supply alone, the short-term impact of halving can be said to be minimal. In the long run, it will indeed have a certain impact on market supply.
        Why do I say that halving only affects the market supply? Because I think that halving only reduces the supply, and the impact on the supply-demand relationship and the so-called "halving market" is very small. One is the history of the past, because after the first two halving, there was indeed a wave of bull market. So people naturally think that the third bull market should be the same. However, it is only halved twice. Statistically, the scarcity of samples is not enough as a rule. Another reason is people's misunderstanding of bitcoin supply and demand. We know that the supply and demand theory P = m / Q, P is the price, M is the demand, and Q is the supply. Market supply and demand are the direct factors that determine market prices. Market prices are positively related to demand and negatively related to supply.
        Under the condition of constant demand, the price increases when the supply decreases, and decreases when the supply increases. Then the supply reduction caused by bitcoin's "reward halving" will cause the price to rise. Is the demand for bitcoin really unchanged? First of all, we should understand that bitcoin is a virtual product. If it is electronic gold, it has neither the global recognition like gold nor the storage function; If it is a currency, it is not recognized by governments. Price fluctuations and low payment efficiency also make it unable to meet the function of currency. As for the risk aversion function, after this crash, do you still believe that it can avoid risks? Believe it or not, I don't believe it.
        The biggest application scenario of bitcoin is to hype it. People's demand for bitcoin comes from the belief that it can rise. Well, from the perspective of halving the market, we all think that the reason why the halving will increase is that the mining industry is in the upstream of the whole bitcoin ecosystem, and the miners continue to mine to maintain the operation of the bitcoin system. After the reward is halved, assuming that the electricity cost, mining difficulty and computational power cost are unchanged, the miners' income will be halved. If the miners' mining yield decreases or even loses money, they may face collective shutdown and exit, and the whole bitcoin system may face the risk of shutdown. For example, this time when the price fell sharply, a large number of old mining machines fell below the cost and shut down.
        Therefore, after halving, in order to ensure the continuous operation of the bitcoin network, it is necessary to let the coin price rise, so as to ensure the miners' income. It is for this reason, coupled with the history of halving in the past two times, that people think that there will be a wave of market after halving. A large number of investors have made full use of leverage to buy long, and miners are also buying mining machines with heavy money. When everyone agrees that it will rise, a consensus has been formed, leading to many people who have not bought coins to chase up, and off-site funds are ready to enter the market to grab a wave of market. Under this expectation, there is indeed a very good market between January and February, and it is difficult for us to predict the lowest point in advance. If we look back and infer from the perspective of hindsight, the reason why this round of halving is "price halving" is not that there is no trace.
        1. Black swan, the first fuse to bear the brunt is naturally the impact of the epidemic. The global market has fallen. Bitcoin is also a financial asset, so it will also fall. An inappropriate example is, what's the use of those invisible virtual coins? There are more legal currencies than insurance. Therefore, those who hold low-cost positions in the early stage will choose to leave the market after they have gained a lot of benefits, and they will change from emotional bulls to substantial bears. Because they need to cash in, when there is panic in the epidemic, these people will become the main force of flight. 2. Circulation: 18 million bitcoins have been dug up. Although nearly 6 million have been permanently lost, 12 million are still in circulation. Take the impact on supply after the halving mentioned above as an example, 330000 less bitcoins have been dug up in one year after the halving, which has little impact on the short-term supply and demand of the whole market.
        3. As for the cost of miners, many people say that the price of bitcoin is determined by the cost of miners. In fact, the price of bitcoin is not determined by the mining industry. As the supplier, miners are restricted by the mining cost. However, no one stipulates that the price of bitcoin must be higher than the cost of miners. Otherwise, everyone will do the business that is stable and profitable. Unless it falls below the shutdown price of all mining machines, the price will be low, so many old mining machines will be shut down, and the competition for computing power of the whole network will be low. Therefore, the cost can always reach a relative dynamic balance. 4. The game of stock capital is the most critical point. The market before the halving is more people's psychological expectations, and the impact after the halving is also very limited. If we really want to usher in the bull market, we need to let bitcoin have more application scenarios and be accepted by more people.
        In this round of small market, there are not many new funds entering the market. The 17 year bull market is due to the hype of the concept of blockchain, and the hot ICO triggered a large number of off-site funds entering the market. In this round of small market, it can be seen that all foreign funds are on the sidelines. They are all on the long side of the market with leverage, which is commonly known as "leverage bull". This can also be confirmed by the amount of several falls and positions. In fact, people can always find various reasonable excuses for the market trend afterwards. For example, in my article, it is because of the sharp fall that we find a reasonable reason why bitcoin halving has no positive impact on the market. What if it did not have the sharp fall but rose instead?.
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