Post-Halving Bitcoin Supply and Demand Curve Could Drive Prices Up

Some have suggested that speculation has already effectively ‘priced in’ any future increases from the halving. Others, however, suggest that the decline in BTC supply will drive price increases as demand remains constant.

After halving, ~50% of all newly mined Bitcoin will be absorbed by just two companies: GBTC and Square

This ignores the 30million Coinbase customers, people investing via RobinHood, eToro, etc. etc

… but tell me again how halving is priced in.

— Alistair Milne (@alistairmilne) December 21, 2019

Bitcoin Halving: The Math

The mathematics behind the prediction is relatively simple. The two firms, GBTC and Square, currently have approximately 25 percent of mined supply. Assuming that this volume remains static post-halving, the companies would hold 50 percent. If half of all BTC is absorbed by these two firms, the demand for the coin should increase substantially. With demand from other firms like Coinbase and general consumer demand, Bitcoin prices could respond favorably. While several assumptions underlie this thought process, the basic picture is clear. Bitcoin should respond positively after the halving simply because of the numerics of supply and demand.

Counterpoints

However, the argument does not necessarily consider a host of other issues.

• First, the assumption that mined volumes will always be held by miners could be flawed. Miners often sell portions of their block rewards — and, particularly, when the market is up.
• Second, the current Bitcoin market is far different than the market during earlier halvings. One major change is the addition of futures trading. Futures traders do not require actual bitcoins to change hands or to be held. For this reason, the volume of BTC mined becomes far less important.
• Third, the amount of mined volume over against the total volume traded is extremely small. More than two million bitcoins trade daily. Changing the block reward to 6.25 from 12.5 BTC is a tiny change in overall trading volume. Previous halving events occurred during times of far smaller overall volume. As such, previous events had a far greater impact.

Anyone’s Guess

While both sides have valid arguments, the future remains unclear. Bitcoin’s next halving will certainly bring attention to the market-leading cryptocurrency and, with it, some volume increases — but other factors may cause BTC to remain stable. If the Bitcoin halving is already priced in, the market will remain stagnant and then likely decline. However, if the event causes an increase in adoption and buying pressure, the price may well increase dramatically.