Weiss Crypto Ratings has published a new study that explores the behaviour of the price of bitcoin in response to the two previous halving events.
Unlike what happens in the financial markets, in bitcoin’s case it is possible to know in advance when the important halving of the miner’s reward will take place. This is how it is defined:
“the immediate, inevitable and irreversible 50% reduction of new Bitcoin supply that is firmly slated for May of this year”.
Following the two previous halving events, which were the only ones to date, the price has skyrocketed, prompting the study to question whether the pattern will repeat itself in 2020 and beyond. In other words, by analyzing price behaviour before and after the previous halvings, Weiss tries to identify a pattern that could repeat itself from May onwards.
The creation rate of new BTC is halved at regular intervals every four years or so. New bitcoins are created to reward miners, and while initially, the prize was 50 BTC for each new mined block, in November 2012 this number was halved a first time to 25 BTC, while in July 2016 it went down to 12.5 BTC after the second halving.
The third halving will take place in May 2020, inevitably bringing the reward to 6.25 BTC.
Weiss Crypto Ratings’ study reveals that in both past cases halving occurred just as Bitcoin was recovering from a previous bearish market.
In fact, in November 2012 there was a bearish phase that lasted 12 months, while in 2016 it occurred after two bearish phases of 19 and 11 months respectively.
The next halving is expected to take place 18 months after the lowest point in the bearish phase in December 2018.
The pattern identified by the research indicates that after a new bullish market the bitcoin price starts fluctuating in a long “sleepy” phase, sometimes months long, of lateral trading. Then the halving takes place and the market becomes bullish.
In the 12 months preceding the halving of 2012 bitcoin first rose on average by 1.29% per day, then the growth stabilized around 0.62% per day on average.
After the halving, growth averaged 23% per day until it reached its first all-time high in December 2013.
Whereas in the 12 months before the 2016 halving, bitcoin first rose by an average of 0.84% per day, then growth fell to an average of 0.39% per day.
But, again, after the halving, growth increased to an average of 5.41% per day, reaching a new all-time high in December 2017.
In both cases, the breakout of a new bullish market was followed by a pre-halving consolidation. And in both cases, the post-halving part turned out to be the most bullish phase of the entire cycle.
Even in the months leading up to the third halving, a similar pattern can be identified, which means that history may repeat itself.