The number of new Bitcoin added to the digital asset’s circulating supply is due to decrease this year. Many investors and industry commentators believe the sudden contraction of Bitcoin released every 10 minutes will result in the price increasing.
However, others argue that, since the information about the halving is well known, the market has already responded to the event. Therefore, they hold that there will be no such sudden increase in the price in May of this year.
1/ BTC halving via the options market: priced-in?
The debate is heating up every day regarding whether the next halving – expected in May 2020 – is already priced in or not, with the discussion centered around the stock-to-flow model and the (in)efficiency of the BTC market.
— skew (@skewdotcom) January 6, 2020
Pricing in the Halving
In the above thread, Twitter-based cryptocurrency analytics firm Skew (@skewdotcom) makes the case that the market has likely priced in the halving information. Skew looks at short term volatility in the Bitcoin futures markets leading up to the halving and compares it to periods before known events occurring in other markets.
The analyst observes that, prior to an event expected to move the market in some way, such as an earnings report or big announcement, there is usually a “kink” around the relevant futures expiry date. In Bitcoin, Skew states that the kink should occur in June this year. However, its absence suggests:
“…. the options market does NOT anticipate any increased volatility around that time!”
This leads the analyst to conclude that either the BTC options market, at least, has priced the halving event in or that the market itself is highly inefficient. They also add a link to a lengthy piece on Bitcoin market efficiency, penned by Coinmetrics.io founder, Nic Carter.
Bitcoin’s Price is Hard to Predict
Given that Carter’s article makes a strong case for market efficiency in Bitcoin, we can conclude that of the two suggestions presented, Skew feels it more likely that the options market has indeed priced in the halving. Carter reasons that professional traders have sufficient interest in the Bitcoin market, and the information relating to the halving has been public for long enough that there is little doubt that the market has indeed priced in the event.
Although Carter strongly doubts that the Bitcoin halving will have any immediate impact on price, he is long-term optimistic about Bitcoin. However, the factors that he believes will make Bitcoin increase in price, such as rampant inflation in a major economy, are hard to predict.
Of course, the restricted supply of Bitcoin hitting the market following May’s halving may indeed have an impact on the price. Any sudden increase in buying pressure, caused by whatever factor, will translate into more violent moves to the upside than occur at present. However, as Skew reasons, the sudden reduction of issuance itself seems unlikely to be a direct driver for higher prices, unless, of course, the Bitcoin market is far more inefficient than either the Twitter-based analyst or Carter believe it to be.