Week of Monday April 19th
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This year has been a wild ride for Bitcoin! Even after the recent drop triggered by escalating geopolitical conflict in the middle east, bitcoin remains almost +50% year-to-date.
The price action over the weekend was the product of market forces coming together to self-correct and eliminate excess leverage in the system.
Said differently, investors got very excited in anticipation of the halving, and took on high leverage going into the event. Over the weekend, when market liquidity was very thin (as most trading volume has moved to U.S. market hours, when the spot bitcoin ETFs are trading), and a relatively small number of sellers can have a disproportionately high influence on price.
The sales triggered some liquidations from overexposed investors, and once the U.S. market opened and ETF investors were able to “buy the dip”, prices stabilized.
In terms of technical price levels, we’re monitoring:
Resistance 2: $73,500
Resistance 1: $68,000
Support 1: $58,500
Support 2: $52,000
For an in depth view at the near term catalysts ahead for bitcoin, don’t miss our Halving essay, “Same Same, But Different”, up next!
Do you remember where you were on May 11th, 2020? Like many of us, you were probably trying to navigate the consequences of what was described as “a potentially life threatening virus” that was spreading throughout the world, causing mandated lockdowns and grinding global trade to a halt. Millions lost their jobs, and millions more were driven to bankruptcy. With this backdrop, people had little time to care about Bitcoin, or the halving.
But Bitcoin doesn’t care about the backdrop. It didn’t care that no one was watching. Block by block, the halving came and went– unnoticed. Soon thereafter, fuel was added to the fire– a wave of freshly printed financial stimulus bigger than anything the world had ever seen was deployed into the global economy.
Fast forward 4 years and Bitcoin is front and center of pop culture. Virtually every news and media outlet has written a piece about Bitcoin over the last few days.
It’s now legal tender in one country, and was just declared as a valid medium of exchange in another.
Spot Bitcoin ETFs have just had a picture perfect start to the year, and issuers are lining up to launch additional products.
The tsunami of bankruptcies in 2022 has wiped out all of the bad operators and shaken out weak players, with the remaining players consolidating as bigger, and better, and building the type of reputation that can only be built by navigating storms. This has hardened the Bitcoin market infrastructure and made it stronger.
New, bigger and better players are coming into the space thanks to the ETFs. It’s no longer a hobby– professional money managers have skin in the game.
This halving will be different, yes. But the end result will be the same. Less bitcoin will be available for sale after today, and more people will want to own bitcoin. We know what less supply and more demand leads to in the long run.
Happy halving amigos. Enjoy the ride.
Bonus Content: Below are some key concepts and videos that we’ve produced around this halving.
What is The Bitcoin Halving?
Bitcoin has a fixed supply of 21 Million coins. The way in which this “supply” of coins gets distributed to market participants is through an activity called mining!
The Bitcoin protocol needs computing power to protect and update the network every 10 minutes. But it doesn’t own or operate any computers - it needs you, me or someone else to contribute their computing power to the network.
The network incentivizes people to contribute their computing power by rewarding one winning computer, or miner, with a set amount of bitcoin every time a new block of transactions is processed - which is roughly every 10 minutes.
The bitcoin protocol has a programmed emission schedule for all of the 21 million coins. As it's currently designed, the network will distribute coins as block rewards until the year ~2140.
When bitcoin first started, each miner received 50 Bitcoin per block. However, the size of the prize that miners get every 10 minutes gets “halved” every 4 years approximately. The current reward is 6.25 BTC, and as of April 20th, 2024, that number will go down to 3.125.
This is crucial because Bitcoin miners typically operate on very thin margins, which makes a lot of them “natural sellers” of bitcoin to cover their fiat expenses.
When there is a shock in supply, and the amount of bitcoin for sale halves, this typically has a positive effect on price in the long run.
How previous halvings have impacted price
The price of an asset is determined by its supply and demand. As we mentioned above, bitcoin miners are seen as the “natural sellers” of bitcoin, because they operate on very thin margins, have FIAt expenses, and get paid in bitcoin. When their revenues “halve” after each halving event, they have less bitcoin to sell. This should drive prices higher by itself, but there’s also a demand element at play.
Previous halving events have coincided with positive macroeconomic events, like the U.S. presidential election cycle. You know who has a vested interest in pumping money into the economy? A campaigning president! And yes, we have a presidential election this coming November.
These 2 driving forces have resulted in bitcoin prices soaring after each of the previous halvings - by a lot! 12 months after the first halving in 2012, bitcoin moved higher by almost +10,000%. After the second halving in 2016 it was nearly +300%, and after the third halving in 2020 it was more than +500%.
This price action acts as a “lure”, and drives up investor interest - which results in even more demand, continuing to drive prices higher.
How it impacts the bitcoin mining industry
After each halving, bitcoin miner revenues get cut in half, and they suffer. This forces many “weak” miners out of business, and the stronger players consolidate, getting bigger each cycle.
These events act as a catalyst to draw in new investors, and to prune out weak miners - ultimately making the network stronger!
How could you benefit from it?
Please bear in mind that this is not financial advice. The below are a few “rules” to enjoy the halving (and the ensuing 12 months):
Rule #1: Do not sell you bitcoin!
If you really need cash, consider using your bitcoin as collateral instead of selling it. You can do so with Ledn!
Rule #2: Buy more bitcoin (and remember Rule #1!)
At Ledn, you can also use the bitcoin you already have to buy more bitcoin, with our B2X loans. Please use it responsibly as you can be asked to add more bitcoin if the price drops!
Rule #3: Enjoy the ride!
Happy Halving Everyone!
Notice for Canadian Residents: As of August 3, 2023, any Canadian BTC or USDC Savings Account is transitioned into a new non-interest earning BTC or USDC Transaction Account for the purposes of allowing Canadian clients to manage their Ledn loans.
Notice for U.S. Residents: As of August 3, 2023, any U.S. BTC or USDC Savings Account is transitioned into a new non-interest earning BTC or USDC Transaction Account. On that date, the account balance in any U.S. Legacy Savings Accounts will remain in such accounts and continue to be non-interest earning.
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