The Weekly (4/26)

The halving has arrived. 

The highly-anticipated fourth iteration of the Bitcoin halving occurred a little after 8:09 p.m. Eastern on April 19th. An event that occurs roughly every four years, Bitcoin’s halving reduces the rate of issuance of new Bitcoin, as well as the rewards for successful Bitcoin miners.

At its core, part of Bitcoin's brilliance lies in its meticulously crafted monetary policy. 

Unlike traditional fiat currencies, susceptible to inflationary pressures from central banks, Bitcoin boasts a finite supply of 21 million coins. The mechanics of the halving are elegantly embedded within Bitcoin's code given that every 210,000 blocks, the protocol automatically reduces the reward by half. 

The halving mechanism acts as a clever safeguard against inflation, progressively reducing the rate at which new Bitcoins enter circulation and creating an increased sense of scarcity as time goes on.

Beyond its impact on supply, the halving triggers a cascade of economic and market-driven effects. The most immediate of which will be felt by Bitcoin miners. 

As the block reward diminishes, miners, the lifeblood of the Bitcoin network, face a compelling economic calculus. Upgrading to more efficient mining hardware becomes paramount to maintaining profitability. This technological arms race, however, necessitates significant investments and a watchful eye on energy consumption. 

We think this may lead to what we’re calling a ‘miner migration’. The economic pressure, especially during times of volatility, may force some miners, particularly those with less efficient hardware and insufficient capital, to exit the space. 

We also wouldn’t be surprised if we saw an increase in mining pools. Collaborative mining pools could become even more prevalent, offering economies of scale for individual miners to bring costs down. Let’s not forget the volatility associated with the nascent asset class and that if the price of new Bitcoins moves lower, the breakeven gets squeezed. Combining resources may help these organizations weather the storm. 

Conversely, for investors, the halving often ignites a wave of optimism. The prospect of a diminishing supply, coupled with growing mainstream adoption, may lead to price appreciation. 

We’ve likened the Bitcoin halving to crypto’s version of a ‘stock buyback’.

When a company completes a stock buyback, they’re reducing the number of shares outstanding so the price per share, all else being equal, increases. If the halving looks like a stock buyback, it could be positive for the price of Bitcoin and has likely already contributed to some of the rally we’ve seen over the last year.

Using history as a guide, this sort of supply shock has created momentum for BTC in the past. The surge in Bitcoin’s price pre-halving has often been followed by sustained growth in the months post-halving:

It’s certainly a small sample size so this isn’t to say that expected performance moving forward is a slam dunk.

Last week’s halving serves as a potent reminder of Bitcoin's inherent ingenuity, underscoring the self-regulating nature of the network and its unique ‘monetary policy’. 

While the short-term effects remain uncertain, the halving has fueled a rally in the asset class while representing a potential watershed moment for the broader digital currency landscape.

Have a great weekend,

– Your Titan team

Disclosures:

As of the date of publishing, Titan’s Crypto strategy holds IBIT, an ETF investing in Bitcoin.

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