Halving guide for noobs: Why it's not possible for halving to be priced in now

[vvv8]

The halving maybe partially priced in psychologically but practically it wont affect the market until 3-6 months after halving.

r0ach is correct when he says

this means the floor miners will stop selling at raised too.

The cost of production floor set by well-capitalised miners' unwillingness to sell at a loss (or even go to buy at the market) is the great secret of bitcoin that prevents it from collapsing totally during downswings.

Halving the block reward effectively doubles the cost of production overnight, thus raising the floor. Without an equivalent decrease in difficulty, it then takes some months to work through the system that bitcoins will 'never' be that cheap to acquire again.

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[LFC_Bitcoin]

Most people in the speculation forum don't understand anything about Bitcoin mining.  The first thing you need to understand is, nobody running a current process node miner actually turns them off no matter what the price does.  You're either an ASIC dealer that spent millions on research and design to make it, or some random Joe that paid a big premium for one.  Turning them off makes no sense for anyone since Bitcoin is an asymmetric investment.  Unless you're mining with crazy expensive electricity, your current generation miner will either pay off eventually, or Bitcoin will go to 0.  There's no purpose in turning it off.

Since the amount of miners deployed increased a lot with the recent price increase, this means the floor miners will stop selling at raised too.  After the halving, the miner profitability drops in half.  If the majority of the network is composed of ASICs that are supposed to be technologically viable, or even near their ROI period at all, but the sell rate is not favorable to that, they will simply stop selling, supply withers to nothing, then the price boom occurs.

Miners also tend to mine at a loss in hopes of future returns (being a deflationary system and all) long before turning their miners off.  It is 100% inevitable price increases after halving.  Post halving price is a function of what the market can bear pre-halving.  We've already seen the Mike Hearn R3 propaganda scare dumps where the market didn't drop that much then rebounded anyway.  There's not a problem with the market supporting this ballpark of pre-halving price.  

No matter how you look at it, post halving, in one way or another, through multiple dynamics, the supply will decrease propotional to demand.  Mining is a form of demand.  Mining is a decentralized exchange, Coinbase is a centralized exchange.  The price could increase 50%, it could increase 100%, or depending how elastic demand is, it could go much higher through a big shock in supply side distortion.

Excellent post r0ach, one of the best & most informative threads I've seen in ages. I actually learnt a few things there. Thank you!

Roach has it spot on, the pre-halving will drive the price up 50% at least and then the aftermath could/might be epic into 4 figures. And, that all depends upon where the worldwide financial system is at that point which could mean 5 digit territory.

Excellent, I love it when a plan comes together

[keystroke]

Difficulty continues to increase, so the miners are ready to keep hashing come the halving.

Let's face it: bitcoin is going up.

[BitcoinHodler]

finally a decent topic in this section that you can call speculation with some reason and not just spam and fud which has been going on here.

[btcbug]

<r0ach> using Descartes style reductionism, you can define Bitcoin in one sentence:  The purpose of mining is to create a permanent two way peg, decentralized exchange, which thus results in a permissionless system.

<r0ach> 99% of these speculators don't even know Bitcoin has a decentralized exchange or how it has effects on price

<r0ach> and you still have PhDs and Thiel award winners who can't comprehend that statement and are creating closed entropy, permissioned ledgers of no value

I've never heard it described this way and never really thought of it to be honest.

You're saying that Bitcoin is based on the exchange of miners trading their energy/work for a digital token (BTC) and the Bitcoin network, being p2p, therefore handles this in a decentralized way. Correct?

If I am off on my interpretation of what you're saying please elaborate further. I think this is a really cool way of viewing things. Typically we only think of the exchange of BTC between wallets or the exchange of fiat and BTC in centralized exchanges.

Thanks for this excellent post!

[Meuh6879]

just look at this 6 month chart, longterm support is basically nonexistent.

Are you sure ... ?

[In4Coins]

This is also how I feel - extremely bullish.

* Tons of weak hands have already sold their positions last two years, wich is proven by relatively small effect of Mike Hearn little shameful move.

Meaning those who hold, hold for good, and those who sold are probably looking for a good oppurtunity to buy again... If Segwit + halvening doesn't do the trick... well they'll probably never buy again....

* Part of the demand for BTC is composed of ppl buying stuff priced in $. They technically don't care much about the price : if the price is 2x, they'll simply buy 50% less, but they'll still buy !

[Chalkbot]

It's entirely possible for halving to be priced in now.

When you buy bitcoin from an exchange (the action that determines bitcoin price) you aren't buying from miners, you're buying from bitcoin holders. Sure, that could INCLUDE miners, but it's not exclusive.

How non-exclusive is it?

According to bitcoinity.org market charts, every day people buy between 1 million and 1.3 million BTC on the exchanges it tracks. If we exclude Houbi and OKcoin (as their numbers are likely inflated) that number falls dramatically to something closer to 200,000 BTC per day. But Houbi and OKcoin are probably doing greater than 0 volume, so let's just say, conservatively, 300,000 BTC are purchased on exchanges every day.

Miners produce (on average) 3600 new BTC per day. If we assume that every miner everywhere sells 100% of his coins immediately, then mined coins represent 1.2% of the supply. If they hold any amount of those coins, than that number is even less.

As we all know, price fluctuations are a result of the ebbs and flows in the bitcoin supply versus demand. So the argument that the reward halving is going to reduce the supply and thus increase the price of bitcoin is indeed valid, but let's not get carried away with 50->100% price increase projections. Remember that people holding coins are not going to have their coins halved, and they represent 98.8% of the daily supply.

So what will happen to the supply (strictly as a result of mining reward halving)?

Well, we're at ~300,000 now, which includes a 3600 mining reward. If we assume once again that all miners everywhere sell 100% of their coins, the biggest impact we could see is a drop of 1800 BTC on the supply side, bringing us down to ~298,200 (or -0.6%).

If everything else stays the same, this would result in a very modest price incline. The deficit is cumulative every day, so in theory the price would have to inch upward to make up for this new 0.6% discrepancy in supply and demand until a new equilibrium is found, but that would not be discernible from normal price movement in all likelihood.

The catch here is that everything else is NOT likely to stay the same. As you can see, there are people that believe that the bitcoin supply will be halved, or that the price will increase 100% immediately after the halving. These beliefs create demand. Demand also rises the price. So while almost nothing is happening on the supply side, we MAY see more significant movements on the demand side.

So why might the halving be already priced in then?

Well, the halving is an event that represents a 0.6% (max.) reduction in the bitcoin supply, something that would warrant a very modest price rise. Meanwhile people have been talking about it and anticipating it for over a year. This means that over that course of time, demand has risen as a result of speculation. Remember that price is set as a function of supply versus demand. Supply going down has the same effect as demand going up in regards to the price. Therefore it can be assumed that any price change that would have happened as a result of the supply side shrinking would have been assumed the moment it could be anticipated on the demand side, which is always immediately with bitcoin.

This doesn't mean that the price WON'T rise immediately before or after the halving. As we saw recently with litecoin, misinformation and hype are powerful (albeit temporary) forces on supply and demand. This is always a possibility, but this would not be a result of the actual halving, only people's perceptions on what a halving will do to the market. After the hype and misinformation phase subsided, the actual supply and demand found it's equilibrium once again roughly 12-14% higher than before the halving (priced in BTC).

[inca]

Nice post. Anyone with any time in the markets knows the market rarely prices things 'in' as efficiently as economists would have us believe.

One small point. The halving reduces coin emission by 50% and reduces the cost of maintaining the network (block subsidy to miners) by half costed in bitcoin.

It isn't quite as simple as you suggest that miners will starve the market to reduce supply and drive up bitcoin unit costs. Over the longer term reduced supply makes a huge difference (favouring a rise in price, demand staying equal).

But markets and prices are set by not just (increasingly insignificant) mining emission, but by the float of bitcoin's on exchanges and overall supply:demand. I hope bitcoin bubbles up again soon (in spite of significant development concerns), but the price could easily crash if speculators decide to sell instead over the shorter term.

Here's hoping for a summer mania.

[r0ach]

So while almost nothing is happening on the supply side, we MAY see more significant movements on the demand side.

First off, you do not understand that Bitcoin has it's own decentralized exchange called mining.  Mining is demand.  There is no "may" about it.  Demand in comparison to supply hugely increases on the demand side and the centralized exchanges are forced to follow

Secondly, most Bitcoins are horded like the movie Leprechaun.  The entire supply of Bitcoin isn't just sitting on the exchange sell side wall.  The float is highly affected by daily mined supply, it's not a small factor.  In the following picture, there's only 16,000 coins until the price is $800 on Finex.  If you just started randomly buying off that wall with the goal of reaching $800, most of them would probably get pulled on the way and you'd only need to buy something like 1/4th of them (at least post halving).  Then all secondary, non-leading exchanges just pull their walls and price goes up without a fight even occurring.

You'll also have people who are just completely stupid and try to short at $450 pumping it to the moon through margin calls.

[BitcoinNewsMagazine]

Thanks for this r0ach. Finally a well reasoned thread on the halving.

[Chalkbot]

First off, you do not understand that Bitcoin has it's own decentralized exchange called mining.  Mining is demand.  There is no "may" about it.  Demand in comparison to supply hugely increases on the demand side and the centralized exchanges are forced to follow

I'm obviously not going to be able to persuade you from your viewpoint, and I'm okay with that.

I'll just add that I do understand the dynamics of mining. I was a miner for over 3 years (4 hardware generations). I shut it down and liquidated the equipment the moment that it became evident that we were approaching a point in time where costs would equal or exceed income, despite your claims in OP that no miner would ever do that.

[WhatTheGox]

Very nice post OP, as i see it the miners are just as heavily invested if not much more so than the hodlers.  The only thing that can keep the price down is some other random variable and things like govs and banking seem to be playing ball for the most part.

[classicsucks]

Most people in the speculation forum don't understand anything about Bitcoin mining.  The first thing you need to understand is, nobody running a current process node miner actually turns them off no matter what the price does.  You're either an ASIC dealer that spent millions on research and design to make it, or some random Joe that paid a big premium for one.  Turning them off makes no sense for anyone since Bitcoin is an asymmetric investment.  Unless you're mining with crazy expensive electricity, your current generation miner will either pay off eventually, or Bitcoin will go to 0.  There's no purpose in turning it off.

While I like your thinking in general, this is a false dichotomy. You're forgetting that miners can and will SELL THEIR HARDWARE. We all know that mining becomes half as profitable overnight when the reward splits. Then likely the price of mining hardware will drop. If the price of mining hardware drops, couldn't the price of coin drop also, despite the decrease in supply? Do we have a good handle on demand? And what percentage of cash for coin exchange is just miners SELLING TO THEMSELVES to keep the price up?

When I look at exchange traffic and charts, it looks like automated trading to me.

[WhatTheGox]

Most people in the speculation forum don't understand anything about Bitcoin mining.  The first thing you need to understand is, nobody running a current process node miner actually turns them off no matter what the price does.  You're either an ASIC dealer that spent millions on research and design to make it, or some random Joe that paid a big premium for one.  Turning them off makes no sense for anyone since Bitcoin is an asymmetric investment.  Unless you're mining with crazy expensive electricity, your current generation miner will either pay off eventually, or Bitcoin will go to 0.  There's no purpose in turning it off.

While I like your thinking in general, this is a false dichotomy. You're forgetting that miners can and will SELL THEIR HARDWARE. We all know that mining becomes half as profitable overnight when the reward splits. Then likely the price of mining hardware will drop. If the price of mining hardware drops, couldn't the price of coin drop also, despite the decrease in supply? Do we have a good handle on demand? And what percentage of cash for coin exchange is just miners SELLING TO THEMSELVES to keep the price up?

When I look at exchange traffic and charts, it looks like automated trading to me.

How are the miners going to get a good price on equipment if the market is flooded with miners?  they might aswell just keep mining at a loss vs having to sell equipment at a loss? both outcomes seem the same but if they sell they have to do more work.

[Chalkbot]

While I like your thinking in general, this is a false dichotomy.

So refreshing to see a newbie who is thinking with his own brain. You're already miles ahead of the rest of this thread man. Keep it up.

[r0ach]

I'm obviously not going to be able to persuade you from your viewpoint, and I'm okay with that.

You would need to read the entire thread for why I claim the altcoin IOTA is a permissioned ledger extortion scheme (as well as PoS coins) to really understand what constitutes a decentralized currency and what the purpose of mining actually is.

IOTA - Permissioned ledger Russian extortion scheme

https://bitcointalk.org/index.php?topic=1414866.0

Also, who else called the Bitcoin rise almost perfectly? (went all in a couple days before at $230)

In the past four years, there's probably never been a safer time to hold Bitcoin than now.

Who else called the Bitcoin dump from $475 almost perfectly in terms of support levels and where it would go? (with the exception of it went in a faster timeline due to Mike Hearn R3 propaganda).  The market then reversed the Mike Hearn propaganda and went back to it's real support level of 410.

I don't see it going to $350 under any circumstance.  If the rally is over, which it might be for a while according to macro wedge breaking trend, then it would find strong support around $410 still.  If there's a dump, that's where it will go.  If a second dump occurred days/a week later after that, it would find big resistance again at 390's.  Worst case scenario would be $360, but would probably require a long time to get there, and by the time it did, would be time to go up again for getting closer to halving.

[Chalkbot]

Also, who else called the Bitcoin rise almost perfectly? (went all in a couple days before at $230)

Heh. If we're judging our credibility on trade history, my last 2 trades were buy @ 230.21 and sell at 499.15. Do I win? No, because that could be luck as much as anything else.

[Master_dandosha]

interesting guides for halving but i have a question in mind regardless to miners what about the traders who buy bitcoin at the current prices they will sell even at 500 $ already profit earned from the current prices.

[r0ach]

People tend to sell when they're in fear of losing money.  If you buy and sell during the rise and eventually reach a point of what you consider stable, what is there to sell for?  Mortgage backed securities?  Top of the market stocks?