The impact of Bitcoin "Halving"

Objectively.....If I own a manufacturing business producing exercise bands and sell them for $100 today, if tomorrow I only receive $50 for them, my profitability is severely impacted.

Bitcoin 'miners' are businesses and from 12th May their BTC revenue will be cut in half, so they need to validate more transactions to earn the same amount of BTC. The concept of BTC planned for a BTC world, it wasn't intended that the price of Bitcoin still being quoted in terms of dollar.

The dollar value of BTC is speculative with many factors, I don't think you can cleanly strip out the price impact of the halving given the market variables, but as pointed out is does make for a good story to attract investors.
 
Your analysis makes absolutely no sense to me.
And the reason for that Brendan is that you are approaching consideration of the bitcoin halving all the while saying to yourself that bitcoin doesn't have one redeeming factor.
You seem to be distinguishing between newly mined BTC and existing ones? But are they not the same thing?
You seem to believe that every one of the 17 million bitcoin are available to you right now - they're not!

But I can buy any of the 17,000,864 and not just the freshly mined ones?
No, you can't. To suggest that every single bitcoin in existence is available to you right now is completely wrong. You're going to buy my BTC that's in cold storage? Good luck with that.
In any given day, when you look at the order books for leading exchanges and you aggregate the numbers, are you telling me that you have the opportunity to buy 17 million bitcoin?...because you don't.
There's 170,000 tonnes of gold in the world (above ground). Are you trying to tell me that if you go out onto the gold markets today, all 170,000 tonnes are available to you to buy? Are you trying to tell me that if its annual production supply - which averages out at 2,700 tonnes/year - increases or decreases, this has no effect on the price of gold?

I am not limited to the ones mined yesterday.
You are not limited to the ones that were minted yesterday BUT you do not have 17 million BTC available to you to buy....in the same way as there are not 170,000 tonnes of gold available for you to buy. On the bitcoin and gold markets, I'm sure there are average weekly volumes as people move in and out of the market. Now when it comes to newly mined coins, these are not going to be hoarded for any length of time. Bitcoin mining businesses have significant costs - those bitcoin will find their way onto the market - that's inevitable. Therefore, when you cut that production output, it's going to have an effect on the supply dynamic...and price (leaving the demand component aside...assuming equal demand rate pre and post halving).

What you are saying is the equivalent of "If you want to buy a house in Ireland, you can only buy a house built yesterday".
That's not what I'm saying. What I am saying - and correcting you on - is that if the CSO tells us Ireland has a housing stock of 2 million, all 2 million are not available to you to buy when you present yourself as a buyer of irish property. In the same way, when you tell me that 17 million bitcoin are available to you when you present yourself at a bitcoin OTC or crypto exchange, that's incorrect.

This is a different point and it's been asked and answered. You're saying that the bitcoin supply halving should be priced in (and the next halving in four years time, and the next one after that, etc.). My position on that remains unchanged. It's intuitive to me that it *should* be. However, maybe it is or maybe it isn't. We'll see over the course of the next 12 months. Bear in mind that the conventional markets are not 100% efficient either. There's no way in the world that the markets as they stand today reflect the state of the world economy.

Try pressing the reset button. If you could look at your arguments as a third party with no preconceptions, you would see how bizarre they really are.
I've got the same proposal for yourself Brendan. Let's see how you react to the above - because I'm already expecting you to say that you talk of gold and you talk of bitcoin in the context of supply but that's irrational because it's gold! Tell me i'm wrong? Tell me that you are not approaching this specific consideration without putting aside your own overriding bias (which is that Brendan believes that bitcoin is hot air and has no value). In the context of this specific consideration, it doesn't matter your view - because there are enough of us out there that disagree.
If you want to make a list of my 'bizarre' beliefs surrounding bitcoin, by all means create another thread and lets go through them. I'm a believer in the contrarian view - so by all means, lets hear it.

Or at least, document your arguments in your diary. It will be very instructive for you to look back at them in a few years and you will wonder how you couldn't see through them.
It's all documented here on AAM if I'm to suppose you keep paying for hosting
I dare say that it will be very instructive to all of us. Duke mentioned the venerable Paul Krugman in support of his argument yesterday. I dare say it would be constructive for him to consider his view in 1999 that the fax machine would be the clear winner in terms of impact vs. the whole internet by 2005.

As regards what I 'can't see through' - I've identified shortcomings in crypto and bitcoin - that's all on record here. There are issues that it still has to overcome. However, as regards what you think I have not been able to 'see through', well that might be something for another thread.

I have looked for some independent analysis of this.
The Independent quotes only Bitcoin fanatics.
Again with the bias. How are the three people quoted 'fanatics'? Lets go through them:
Danny Scott - CEO of CoinCorner - a UK Crypto exchange. Scott has worked with CoinCorner - and thus in the industry - since 2014. He's a contributor to Bitcoin Core (i.e. he submits code for consideration as part of Bitcoin Improvement Processes (BIPs).
Don Wyper, COO of crypto ATM network, Digital Mint.
Raoul Pal - Former Goldman Sachs Hedge Fund Manager; Founder of market research service, Global Macro Investor.

In the case of the first two, they work in the industry. It's fair to assume that they have some belief in that industry. However, you are the one that has added the prejudicial 'fanatics' tag. You may not agree with them but they are well placed to comment on the bitcoin halving.
As for Raoul Pal, his background is in the conventional markets. That's where he built his career - as a macro analyst - identifying seismic changes and innovations before the herd. He didn't come up with crypto - but over the course of the last year he has become a strong supporter of the potential of bitcoin and cryptocurrency.

Tecate - have you found any sceptical analysis of the price impact?
There is one main consideration with regard to speculation on the halving and its one that has been discussed here - is it priced in or not? There are differing views on that in the industry.
What you present with otherwise (see above) - that has not been mentioned by a soul - in the mainstream financial media's consideration of the halving or in the crypto media's reportage on the halving.

Your dukeness, technical analysis tools such as the Fibonacci Retracement predate bitcoin and cryptocurrency. They are used by day and swing traders in the traditional markets. I don't have strong knowledge on their use and don't have strong opinions on technical analysis but if you want to have a go at that, then that's a separate discussion/argument - and one that I would suggest that would be equally if not more at home in the 'investments' sub-forum rather than 'alternative investments'.
 
Last edited:
Reactions: jim
It is difficult to get a precise handle on the supply/demand dynamic of the btc/$ exchange rate. But let me try using the following facts.
There are 18.3m btc in existence (apologies for the fake news initiated by me that there are 17m)
There are c. 300,000 transactions per day on the blockchain
There are c. 1.800 new btc mined per day, due to fall to c.900 after the halvening
The two figures we are looking for but which are not available (so far as I can see) are:
How many of the 300,000 transactions represent exchange in or out of FIAT and what value does that represent?
How many of the newly mined btc are dumped on the market and how many are hoarded?
Here are my guesstimates but I could have them wildly wrong:
There would only be a limited amount of the transactions that would be purchasing latte so I would say that we could surmise that half are in fact exchanges with FIAT, that is 150,000 transactions. What value? $10K on average?? That's up to $1.5bn.
Let's say the miners dump half of their btc on the market that would roughly constitute say $10m per day, due to fall to $5m per day.
That is a 1 in 3,000 fall in the active FIAT/btc market - totally irrelevant.
What about the 18.3m btc (c. $200bn) in existence. Like any liquid asset (shares for example) they are all to some degree part of the price dynamic. Some folk like tecate are attached at the hip to their btc and so they do not enter the dynamic. But my view is that, to quote the same tecate, btc is in a formative phase and a great amount of these btc are held for speculative purposes and this would swamp any price impact of the newly minted coin.
 
To suggest that every single bitcoin in existence is available to you right now is completely wrong. You're going to buy my BTC that's in cold storage? Good luck with that.

Hi tecate

You are missing the point completely.

I can buy a Ryanair share today. It does not matter if you don't want to sell yours, there are plenty of sellers.

The price is determined by the total supply and demand.

You seem to be suggesting or implying that the only supply is the newly mined BTC. The newly mined BTC is an insignificant fraction of the total supply today.

Brendan
 
I will say it again, BTC is not like potatoes.

If a drought halves the production of potatoes, the price will rise because there isn't a massive storage of them equal to 52 years production.

If we were able to store potatoes and keep them as good as new and we had 52 years production in the warehouses, a halving in the harvest would have no impact on the price.

Maybe oil production would be a better comparison as we are more familiar with the price. If Saudi cuts the supply, the price rises and vice versa.



Brendan
 
You mentioned gold and I thought that was an interesting comparison. In theory , the price of gold should not be related to the mining output. And in practice, it's not.

However, you will see that some consultants produce data to show when there is a deficit or surplus of gold, but according to this author, they are flawed.

He makes the point I am making but much better.


Brendan
 
It is difficult to get a precise handle on the supply/demand dynamic of the btc/$ exchange rate. But let me try using the following facts.
The broader consideration of demand-side is one for another day. However, looking at supply in more detail in this instance (since we're talking about a 50% cut in supply), then it's not difficult at all. As of block 630000/May 12, bitcoin miners will receive 50% less BTC, creating a supply shock by comparison with what the market currently experiences. The same thing happens 4 years from now and the same again 4 years from then.

There are 18.3m btc in existence (apologies for the fake news initiated by me that there are 17m)
Don't fret yourself Dukey...if you or anyone here wants to check precisely how many bitcoin have been issued by a given time, you can find that information here.

How many of the newly mined btc are dumped on the market and how many are hoarded?
When coins are mined, that process is carried out at substantial cost. The crypto mining sector is now highly professional - with the involvement of substantial firms. They may strategise as regards when they sell their bitcoin but for the most part, the vast majority - if not all - of those coins are going onto the market. The sector couldn't sustain itself otherwise.

Your thesis is fundamentally flawed from the outset. Firstly, of the 18.3 million bitcoin, it's estimated that 4 million bitcoin are lost/unredeemable (as in the very early days when bitcoin was not valuable, people didn't take care to store their bitcoin properly). I only mention that as an aside because it's incorrect to consider every single bitcoin in existence. What is correct - is to consider circulating volume. You can look at trading averages for example in the year leading up to this halving. When the supply component within those parameters is reduced by 50% (in terms of newly minted coins), it's significant.

Some folk like tecate are attached at the hip to their btc
That's not correct. I do see the potential in the cryptocurrency - I've acknowledged both its plus points and its drawbacks right here on this forum. That doesn't make me 'attached to the hip' to BTC.

But my view is that, to quote the same tecate, btc is in a formative phase and a great amount of these btc are held for speculative purposes and this would swamp any price impact of the newly minted coin.
So there are speculators in every conceivable asset class. Implicit in the Dukes thesis is the notion that everybody is lined up and ready to sell btc. Bitcoin has been around for 11 years now. In that time, it has had more than its fair share of shocks in terms of pricing. It has proven its resilience. Furthermore, it achieved the milestone of 3 million bitcoin wallets holding in excess of 0.1 BTC for the first time recently. Therefore, it makes perfect sense to look at average supply/demand over the past year, consider the supply/demand quantities over that time and then consider the effect of the coming supply shock in that context - NOT against every single bitcoin ever issued.

You are missing the point completely.
I beg to differ - the inverse in fact.

You seem to be suggesting or implying that the only supply is the newly mined BTC.
I'm not. See my explanation in response to Dukey above.

The newly mined BTC is an insignificant fraction of the total supply today.
Weighing it up against all bitcoin that were ever issued is likely to lead to a wayward calculation outcome. It should be considered in terms of circulating bitcoin supply (again, as outlined above).

I will say it again, BTC is not like potatoes. Maybe oil production would be a better comparison.
I never mentioned a comparison with potatoes - so we don't need to go down that route.
Equally, I don't think comparison with oil is useful in this instance (although at -$37/barrel, it's definitely in the same league as potatoes).

You mentioned gold and I thought that was an interesting comparison.
Bingo!

In theory , the price of gold should not be related to the mining output. And in practice, it's not.
Well, first off the bat, the reason that it's fitting to consider bitcoin alongside gold in this context is because gold is first and foremost a monetary metal. That is to say that the vast bulk of its value is derived from a store of value use case. That makes it an appropriate means of comparison with bitcoin.

As to your point that the price of gold isn't related to production output, that's not what most gold bugs believe insofar as I'm aware. My understanding is that Stock to Flow modelling is used in the gold sector - as a tool to determine (ultimately) price. The World Gold Council refers to the supply/demand dynamic here:

"Like any freely-traded good or service, the price of gold is determined by the confluence of demand and supply". Thereafter, it goes on to consider production supply within the overall supply/demand dynamic as it relates to price . That seems to do away with your theory that the gold sector doesn't take it into account when considering price.
However, you will see that some consultants produce data to show when there is a deficit or surplus of gold
Well, that citation above is from a report by the World Gold Council - a non-profit association of the world's leading gold producers and a market development organisation for the gold industry....not just any old consultant.

He may well be right. He just needs to get the now $9 trillion gold industry on board with that.

Lets refresh ourselves as to how this discussion emerged in the first instance. Dukey brought the bitcoin halving up for discussion - aghast at the notion of the halving and some peoples consideration that it might lead to upward pricing pressure going forward. If the crypto sector is equally mistaken as the main proponents of and stakeholders in the $7 trillion dollar gold industry, I can live with that.

At the end of the day, I never expressed a view on price increases post halving. What I will say right now is that over the longer term - a scarce asset becoming scarcer sounds bang on to me. Gold and bitcoin are scarce assets. Meanwhile, this is FIAT money => $$$$£££€€€€
 
Last edited:
Interesting stats on the demand for Gold from the World Gold Council. Jewelry 61%, Investment 27%, Industrial 12%. I do think that Gold is an Armageddon hedge, of which more later.
Compare this to the demand for bitcoin produced by the MSO.

Speculation 89.1%
Buy to hold 6.1%
Bragging rights 2.9%
Criminal activity 1.5%
To buy things 0.4%

Interestingly, the MSO splits investment between speculation and buy to hold (the tecate's of this world)
I myself was surprised at the small share attributed to criminal activity
 
Last edited:
Reactions: Leo
I said I believed that Gold is a hedge against monetary Armageddon. It has genuine intrinsic human value over the centuries and it is encouraging that insurance/investment demand at 29% possibly does not have too great a distorting affect on price.
So I ask myself why am I not availing of this insurance especially as we enter unchartered waters in monetary management. A few reasons.
For a start to have meaningful insurance for my fixed income I would have to place all my investible assets in Gold. I would be substituting balance sheet volatility in place of fear of Armageddon. I can put the latter out of my head most times but I think I would be in a permanent state of anxiety if I were fully invested in Gold.
And how would I go about it? I know there are Gold ETFs. But a piece of paper saying I have so many units in an ETF has the same zero intrinsic value as an entry in my bank account or on a blockchain ledger. True it purports to be tethered to Gold and I am sure it is. But in an Armageddon scenario would I really be sure to get my hands on the Gold? For me it would have to be a Gold bar (a v small one I assure you) buried in the back garden. Not worth the effort.
Third point. A monetary Armageddon in the Western world is likely to be accompanied by a real Armageddon - WWIII, just as the depressed economic conditions of the thirties was a contributory factor in WWII. To paraphrase Barry Maguire what good would my Gold bar be with the world in a grave?
 
Forbes have two articles, but I can't access them:

A lot of the Forbes coverage falls into the hype bucket, much of it attempting to justify predictions of massive price rises based purely on comparisons of price movement patters with previous price spikes with no attempt to look at the drivers behind the spkies.

On sceptical analysis, some commentators are concerned about the impact in mining profitability and increasing Chinese influence there, and in the specialist mining hardware too.
 
@Duke of Marmalade : My understanding was that this was a discussion of the upcoming 'halving' event - you seem to be going off on a solo run on posts #28 & #29 but no matter. Who is the MSO?

The suggestion is that gold has all sorts of use cases whereas bitcoin is just speculative, right? Firstly, on the breakdown of use cases you provide, we have 88% between jewelry and investment. Have a look through the World Gold Council's report and particularly, their section on jewelry. They identify China, India & Turkey as accounting for the majority of gold jewelry demand. They go on to explain that in these countries, gold jewelry is treated as a store of value and an asset within families. These are not people who invest in gold ETFs. Gold jewelry is their ETF and their investment. Ergo - to my original point - when commentators say that gold is a 'monetary metal' - they mean that it's largely used as a store of value and an investment. According to your stats, that's an 88% investment use case.

That brings us on to your comparison with bitcoin. Bitcoin and digital assets are a new asset class. That asset class is formative and bitcoins position within it is formative. With any newly emerging technology or innovation, there will be speculation. However, based on this and previous posts, you seem to treat speculative investment as if its wrong in some way - but only wrong to your mind when it comes to bitcoin.

Speculative investment is pervasive in every asset class. Your comparative analysis is skewed as one data set itemises speculative investment (for bitcoin) and the other doesn't (for gold). Are you going to tell us that there is no speculative interest in the gold market? - because there is.

Bitcoin brings the same value to the table as gold and then some. Value is derived in both as they're scarce assets and a hedge against the FIAT money system. Around the world, the FIAT money system vapourises the savings of ordinary people on an going basis. Last week, we had the going down the toilet and Lebanese banks preventing citizens from withdrawing their money. Yesterday, yet another FIAT currency died. The Iranian Rial has succumbed to hyperinflation and will be replaced by a new version (which, within months will be in the very same position).

It's for these reasons that the Global Head of Equity Strategy of a leading Investment bank advised his clients last week to buy bitcoin. No doubt when they do so, their investment will go down as 'speculative' also.
 
Last edited:
@Duke of Marmalade : My understanding was that this was a discussion of the upcoming 'halving' event - you seem to be going off on a solo run on posts #28 & #29 but no matter. Who is the MSO?
It wasn't moi who brought up the subject of gold. You don't want me checking that all your posts are strictly addressing the title of the thread do you? You mean you haven't heard of that respected organ the Marmalade Statistics Office?
 
On sceptical analysis, some commentators are concerned about the impact in mining profitability.
At every halving there is a shake out in terms of miners. Those using 2nd generation mining equipment and more expensive electricity will fold (although that may already have happened following the covid induced crash back in March). After the shakeout, the mining hash rate will adjust back a bit - and the most efficient miners who remain will find themselves in more profitable conditions.

and increasing Chinese influence there, and in the specialist mining hardware too.
The fear of mining centralisation has been a perennial subject in crypto and not something that's halving-centric as such. I don't believe it represents the big risk to bitcoin that some suggest. I'd be in agreement with Andreas Antonopoulos' view on it. More recently, new mining hotspots have been emerging in New York State and the Pacific North-West of the U.S where there is abundant cheap and stranded hydro power. In Texas, Japanese conglomerate SBI has invested in a large bitcoin mining project. A company backed by Paypal co-founder Peter Thiel is investing $50 million in a solar/wind based mining project in the same state.
The writer of the article that you cited is the head of mining operations at Genesis Mining - who base their mining operations in Eastern Europe. It's probably not in his interests to talk up mining activity in China.
 
It wasn't moi who brought up the subject of gold.
Gold was discussed in the context of the halving.
You don't want me checking that all your posts are strictly addressing the title of the thread do you?
Do as you see fit, your dukeness.
You mean you haven't heard of that respected organ the Marmalade Statistics Office?
I hadn't although I suspected it was a Marmalade statistic. But good to get official confirmation
 
Hi tecate

The fact that people speculate in gold which has a use and a value does not mean that it is ok to speculate in BTC.

The only "value" in BTC is speculation. You are speculating that a greater fool will come along.

Brendan
 
The fact that people speculate in gold which has a use and a value does not mean that it is ok to speculate in BTC.
Asked and answered many times already Brendan. Gold is a 'monetary metal'. The value you speak of is peripheral (as in 12% peripheral). Its actual value is scarcity. Bitcoin's value is also scarcity (along with divisibility, censorship resistance, portability, global peer to peer transactability without the need/cost/interference of an intermediary). It's programmable money - with designed in scarcity.

The only "value" in BTC is speculation. You are speculating that a greater fool will come along.
That's an opinion and not a fact.

You speak of the 'value' of gold. Tell me - why is the price of gold so far removed from its production cost? It's a store of value and a hedge against the conventional markets and FIAT monopoly money. Explain how the World's 9th largest investment bank is advising its clients to buy both gold and bitcoin right now?
 
Last edited:
Hi tecate

We had discussed gold extensively. It has a real value because it has a use in industry and in jewelry. I don't personally have much use for it myself.

If someone is recommending Bitcoin as a store of value, it's only because they have taken leave of their senses and they can't see through the mania. A lot of clever people are the same.

Scarcity is not a reason for buying BTC. My poetry is scarce. It doesn't make it valuable.

Brendan
 
I don't believe it represents the big risk to bitcoin that some suggest.

I'd have thought people who put forward the argument of Bitcoin as a safe haven form meddling governments wouldn't have thought giving China such control was a good idea
 
We had discussed gold extensively. It has a real value because it has a use in industry and in jewelry.
See above Brendan. You're talking about a 12% use case for other purposes. It is a monetary metal and its price reflects that. Its price doesn't reflect the peripheral use cases you speak of - it's price reflects its use as a store of value. If new sources of gold were found (not that I'd expect that to be a thing any day soon), the value of gold would plummet. That relates to one of the cornerstones of value/currency - scarcity.

If someone is recommending Bitcoin as a store of value, it's only because they have taken leave of their senses and they can't see through the mania.
Again with the emotive and prejudicial turn of phrase. What 'mania'? We had a market bubble in bitcoin at year end 2017. It's 2020 - and bitcoin has been around for 11 years. Where's the mania?

Scarcity is not a reason for buying BTC.
Incorrect. It's a core characteristic of what makes for sound money (alongside divisibility, portability, censorship resistance, durability, fungability, etc). That you blatantly ignore the fundamental characteristics that are necessary to provide for sound money/store of value is your own shortcoming.

My poetry is scarce. It doesn't make it valuable.
Score your 'poetry' against the characteristics of sound money/store of value as per the chart below and see how it compares. Then you'll have your answer. It might actually rival FIAT.

The Attributes of a Good Store of Value



(For anyone who would like to delve a little deeper into the characteristics of sound money, you can find that analysis here.)
 
Last edited: