With Bitcoin’s (BTC) third mining rewards halving just over 24 hours away, mainstream market hype surrounding the event has grown exponentially, especially after balancing on the $10K threshold for some time. On May 9, BTC dropped to the $8,100 mark before making a small recovery to around $8,800.
Nevertheless, the fact that BTC has overall been able to stave off bearish market pressure instilled a certain amount of confidence in the hearts of investors all over the globe — despite Bitcoin facing a 15% value slip on May 9.
Additionally, it bears mentioning that since dropping to a price point of around $3,867 registered on March 12, Bitcoin’s value has almost tripled, so much so that a report released by blockchain research firm IntoTheBlock claims that nearly 85% — or 25.79 million — of all wallet addresses holding Bitcoin can currently sell at a profit from their holdings.
With all of that information out there, it is worth delving deeper into the question of what do Bitcoin’s key market indicators actually suggest about the currency’s future after its halving event, and whether or not the crypto asset is destined for a major financial upswing — as many pundits have repeatedly pointed out since the start of the year.
Relation to BTC’s Fear and Greed Index
To get a better understanding of everything that’s happening right now with the halving, CryptoNewspeople reached out to Pascal Gauthier, the CEO of Ledger, a hardware crypto wallet manufacturer, who believes that Bitcoin’s Fear and Greed Index has remained very conservative all through March and April. However, he did add that his firm has noticed a huge decoupling of people’s interest in crypto — which surged through social media and Google searches — amid the volatility fears surrounding the crypto markets.
He also opined that as the halving nears, the greed aspect of the F&G Index seems to have increased quite exponentially, adding that this phenomenon can largely be attributed to the aforementioned event.
Similarly, David Waslen, the CEO of HedgeTrade, a blockchain-based forecasting platform, believes that with the halving just a day away, Bitcoin is hovering in the neutral zone of the fear and greed index, coming off a long bearish stretch in the excessive fear zone. He added: “With record-high exchange volumes and all the money pouring into stablecoins (that could easily move into Bitcoin), this neutral phase may not last long.”
The aforementioned sentiment is also echoed by Jeffrey Liu Xun, the CEO of XanPool, a peer-to-peer fiat gateway, who opined that while BTC’s Fear and Greed Index has been exhibiting neutral signs, the greed element seems to be taking over and increasing quite rapidly. Xun further said:
“The F&G Index just swung from ‘extreme fear’ into the neutral territory and seems to be gathering steam towards the ‘Extreme greed’ territory.”
The effect on the hash rate will be noticeable
Bitcoin’s halving is a fundamental event that most people from within the crypto community look forward to every four years, as it directly relates to the supply and demand of the premier crypto asset. And while the halving does not always have a direct relation with the Fear and Greed Index for BTC, it certainly has an effect on the cryptocurrency’s hash rate 100% of the time. This is because, after the event, block-reward sizes become smaller, which leads to a drastic increase in mining efficiency-related requirements.
To get a more holistic view of how the halving will impact Bitcoin’s hash rate, CryptoNewspeople reached out to Lennix Lai, the director of financial markets at crypto trading platform OKEx. In his view:
“In the short term, we may see some miners being unable to continue in the game. This means that the hashrate has the potential to go lower. However, with enhanced equipment and miners becoming more efficient, hashrate will gradually pick up again.”
Similarly, Marie Tatibouet, the CMO of Gate.io, a Bitcoin exchange platform, pointed out that if one were to go by previously recorded data, Bitcoin halving events have traditionally been followed by a gradual increase in the network’s hash rate — only to dip once again three months after the event. She further said:
“The hash rate also surged at a rapid pace after the second halving in 2017. If we buy some of these data trends, I believe the hash rate will increase in the one month window after the halving.”
Lastly, a number of experts also tend to agree with the notion that a rise in the hash rate will most likely be witnessed in the near future since a large number of BTC miners may have to start consolidating their resources in order to stay afloat within this space. Not only that, but it is also entirely possible that the day-to-day workings of this burgeoning sector may become defined by the activities of a fair few individuals or groups who own sizeable rigs and have the necessary capital to weather the imminent threat of reduced block rewards.
The halving’s impact on Bitcoin’s price
As the reduction in Bitcoin’s block reward quotient will become apparent immediately — i.e., the amount of BTC received per block will drop from 12.5 to 6.25. This reduction, in Lai’s opinion, will most likely force smaller-scale miners to potentially go out of business and lead to an increased amount of sell-off pressure, which, in turn, may result in the crypto market turning bearish in the short term. However, in the longer term, Lai believes that BTC’s price will rebound because, from a macroeconomic perspective, BTC has begun proving itself as a safe-haven asset.
Also, following the halving, if Bitcoin’s hash rate falls, then historical data seems to point to the fact that the currency’s price will most likely follow suit. In this regard, looking at data from 2012 and 2016, the premier crypto asset’s price rallied before each event and corrected itself shortly after. Similarly, in both cases, the medium-term saw BTC’s value rise by a whopping 10,000% in 2012 and then again by 2,500% in 2016.
Xun, too, believes that in the short-term, a price dump may occur. In this regard, he clarified: “I see a local top occurring on the halvening date + – 2 days or so. And then the price trading lower than that for a short term period.” However, Kade Almendinger, a co-host of the Dark Side of the HODL Moon podcast, firmly believes that any potential monetary upsurges in BTC’s future may have already been factored into the currency’s existing value. He added:
“We already saw a price run-up from April 28th to the 30th and then a sell-off correction later on the 30th of April. It came up again on May 6th and seems to have some support at $9,200. The bulls will likely push it higher pre-halving and I wouldn’t be surprised to see $10K plus BTC prior to the halving, with a modest sell-off and price correction post halving.”
COVID-19 induced uncertainty
Considering the post-halving surges that followed the first two halvings, it would not be surprising to see a similar growth spurt in BTC’s near-term future. However, this time, owing to the ongoing COVID-19 pandemic, experts are eagerly waiting to see how the current situation affects the premier crypto’s financial future — especially as the virus continues to bring stock markets all over the world down to their knees. On the subject, Tatibouet stated:
“I believe the COVID 19 pandemic has a great role to play in the larger scheme of things. Initially, it created some anxiety in the investor community and then eventually it stabilized. We have seen BTC trading on our platform increase after the COVID-19 hit China. I think the rise in Bitcoin trading volume, in general, is responsible for Bitcoin’s recent recovery and eventually its stability.”
Similarly, Lai, too, believes that the current crypto market looks cautiously bullish despite the COVID-19 crisis plunging the global economy into a massive depression. In this regard, he added:
“Most central banks have been considering alternative non-currency asset classes. However, they have their limitations when it comes to hedging the risks initiated by COVID-19-induced global lockdown, especially in the equity market.”
Is Bitcoin’s momentum all FOMO?
In order to evaluate whether BTCs current financial momentum is sustainable or if it’s just a by-product of widespread market fear of missing out, or FOMO, it is worth considering the fact that the ongoing optimism surrounding the industry might be because the Bitcoin network has matured over the past decade — so much so that it now supports hundreds of exchanges, futures markets, lending programs, wallets, swap platforms, as well as various blockchain-based financial applications. In this regard, Waslen added:
“People are bullish for sure, and maybe some of that is based on hype. But it’s also because of all the building that’s been going on plus the fact that Bitcoin has the largest, decentralized computer in the world providing security for its global users. For 10 years, it’s been going strong, has not been hacked, and has exceeded the ROI of every other asset (over the decade).”
Lastly, Gauthier believes that the pandemic has caused traditional finance players to re-evaluate their long-held beliefs in such a way that many mainstream corporate entities have started looking at Bitcoin as a legitimate store of value — something, he believes, has helped create positive momentum for the premier crypto asset.
A post-halving outlook
Most crypto pundits are of the opinion that BTC’s financial potential cannot be ascertained accurately in the short-term due to a number of technical variables that are difficult to evaluate.
Additionally, with Bitcoin’s current value hovering at levels much lower than what they were back in 2017, many of the “get-rich-quick type individuals” have largely disappeared from this space, thus leaving the ecosystem largely in the hands of those who are interested in making use of the digital potential of BTC to create novel financial platforms, as well as other similar offerings. Speaking on Bitcoin’s future, Adam Traidman, the CEO and co-founder of BRD, a cryptocurrency wallet provider, told CryptoNewspeople:
“Warren Buffet won’t invest in Bitcoin because it’s too volatile, yet look at oil. The old ways of thinking are behind us. Compared to a majority of other assets, if you held Bitcoin throughout this year, you would’ve ended up towards the top. There’s a reason that a lot of long-time Bitcoin enthusiasts say that no matter what happens with volatility, at the end of the day, if you believe in the future of Bitcoin, any of these prices are a great deal.”