The price of Bitcoin has been consolidating for the last two months, and on-chain analytics and historical precedent suggest that Bitcoin is a caged bull below $60,000, ready for the next leg of parabolic price appreciation.
Halving Cycle Dynamic: Three Stages Of A Cycle
Many are familiar with the correlation between bitcoin’s supply issuance halving and the price action, but digging deeper can provide context to where bitcoin is in the current cycle, and what the future price action may hold.
The previous two bitcoin bull runs paint quite an interesting picture about the interplay of the protocol’s inelastic supply issuance schedule and the price action of the monetary asset.
To provide context: The Bitcoin network issues new supply every block on a predetermined schedule, with the amount of bitcoin issued by the protocol being reduced every 210,000 blocks, or approximately once every four years (as blocks come in at an average time of once every 10 minutes).
Stage One: The Parabolic Advance (First 70,000 Blocks After Halving)
Bitcoin miners can be thought of as the most bullish market participants, as large capital expenditure must be made before any bitcoin is even acquired, followed by the operational expenses that come with the energy needed to mine. As a result, miners hold onto as much bitcoin as they possibly can, oftentimes only selling the bare minimum to cover expenses.
Directly following a halving event, new supply issuance of bitcoin is cut by 50%, which puts downwards pressure on inefficient mining operations, which have to shut down as their revenue is cut by approximately 50% overnight.
This purge of inefficient mining operations causes network hash rate to temporarily drop off, leaving only efficient mining operations with cheap power sources and/or next generation ASICs to mine for blocks. With inefficient miners that operated with negligible profit margins out of the market, and hash rate pulling back significantly, difficulty adjusts…