Halving Impact

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In this edition, we’ll discuss the upcoming Halving and, more importantly, its impact! With 19.6 million coins already in circulation, the Halving of supply issuance becomes less impactful with each cycle. But can we quantify its impact? In this newsletter, I present a chart to do just that!

Halving Impact

In the above chart, we plot the circulating supply of bitcoin and the trajectory of supply issuance if we did NOT have a Halving (dark orange triangles). We also show illiquid supply based on the HODL model (in blue), which allows us to project the actual illiquid supply (also shown in the chart) into the future. The Illiquid supply is mostly in the hands of Hodlers, who primarily use Bitcoin as a Store Of Value. The remaining supply (in light orange) represents the available supply for trade. These are estimates, and while some Hodlers take profit, as seen in a different time-based variant that is LTH supply, this offers a reasonable representation overall.

Key Insights

• In the first 4 years, half of the supply was mined.

• Without the Halving event, we would reach the 21M cap every 4 years, as illustrated by the triangles (dark orange).

• The percentages indicate the area of the reduction in supply compared to the available supply for trade.

• It’s observed that the Halving impact logically diminishes.

• The next Halving impact is estimated as a ~6% shock (5.9%) of the available supply over the next 4 years.

Understanding the 6% Supply Shock

It’s important to mention that the 6% shock caused by the Halving will unfold over 4 years. As I have mentioned on the recent “What Bitcoin Did” show, a supply shock exists at a specific price level until a new seller is found, at which point the shock dissipates. However, the gradual 6% reduction in supply will disrupt the supply-demand balance, putting upward pressure on price. Historically, this momentum provided a phase of "hope".

All-Time High Before the Halving

Without the ETFs, we might have seen a "hope" and "calm" phase, caused by the Halving, eventually leading to a full-blown bull market. Yet, the ETFs have already triggered a bull market, skipping two entire phases and propelling us to an ATH before the Halving.

We already discussed how the impact of the ETFs is an order of magnitude larger in terms of a shock. However, their flows are highly variable; more on this below! Nonetheless, an additional 6% shock over the next 4 years will be significant!

4-Year Cycle

The ETFs might have induced a permanent Left-Translated Cycle, or we may need an intermission of some sort to realign with the 4-year cycle. The recent ETF flows have reduced in tandem with the correction in price. Therefore, it’s crucial to observe whether flows pick up as we near the Halving.

What to Expect Moving Forward

With the Halving just around the corner, the outlook for the coming months looks promising.

Of course, it is vital to monitor the ETF flows.

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I hope this newsletter has provided you with valuable insights into what to expect from the Halving. As always, let me know what you think in the comments! 👊

See you next week! 🧡

-Root