The most significant impact of the halving could be on Bitcoin miners’ economy. The short-term bullish market narrative contrasts with that of Bitcoin as a haven of value.
Given the proximity of the third Bitcoin halving, the analysis platform Messari provided several theories to understand this scheduled event. It highlights the role of Bitcoin’s monetary policy in a context where central banks are issuing money continuously. Furthermore, they highlight the idea that Bitcoin is now “part of the public consciousness.”
Last May 6th, Messari released a report in which it describes the impact that the Bitcoin halving could have on miners’ economy. The text says that, without an increase of 100% in the price to compensate for the reduction in the issuance of coins, miners’ income will be significantly affected.
This scenario indicates that the current increase in Bitcoin’s hash rate will not necessarily be sustained in the long term. Miners will have to deal with the costs to maintain inefficient equipment. Therefore, many miners may disconnect some of their devices after the Bitcoin halving.
This situation could mean greater vulnerability to a 51% attack, according to Messari. However, no one expects a reduction in the hash rate below the levels of June 2019.
The Narrative of Digital Gold
According to Ryan Selkis, CEO of Messari, the halving represents an “official reduction” in Bitcoin’s monetary expansion below the 2% inflationary expectation of the US Federal Reserve (Fed).
Selkis believes that the narrative reinforcement that “Bitcoin is now less inflationary than the Fed” marks Bitcoin’s evolution from beta to production as bona fide digital gold. This could be a gateway for institutional investors who want to enter the cryptocurrency market.
However, research analyst Ryan Watkins considers the halving is, to some extent, a marketing event occurring every four years in which Bitcoin reminds the world of its superior properties. He considers that whilst fiat monetary regimes are inflating at all-time rates, Bitcoin is adjusting its monetary issuance rate to parity with gold. This situation has attracted new investors and the reduction by half of the issuance seems to be a “bullish catalyst.”
However, Watkins does not completely agree with that perspective. He believes that the crisis that the coronavirus has caused still has a lot of influence. Besides, he thinks that Bitcoin has not completely decoupled from traditional exchanges and markets.
Demand, Rather than Supply, Drives Price
Jack Purdy also disagrees with the narrative that reducing Bitcoin issuance will determine the bullish market. He considers that the only factor that could increase the price “of a good with a perfectly inelastic supply is an increase in demand.” However, other studies speculate that the price could drop in the short term.
The halving itself is not all that interesting, according to Qiao Wang, Messari’s Product Manager. He notes that the fact that the halving occurs in a predictable and verifiable manner is the real innovation.
Ryan Selkis acknowledges the power of marketing around price increases in an economy characterized by a supply reduction policy. He argues that, in the case of events like Consensus, if ticket revenue is doubled six weeks before the event, it is easier to predict the final figures. The CEO says that, regarding cryptocurrencies, the doubling date can be further extended by trading the artificial shortage, and the upcoming price increases.
Messari analyst Wilson Withiam sees the Bitcoin halving as a reminder of the work needed to ensure Bitcoin’s longevity in the long term. Besides, research director Eric Turner says that the halving shows that Bitcoin works, and exemplifies its ability to go ahead with a defined monetary policy.
By Alexander Salazar