Halving Events as a Spark

One of my favorite things about the bitcoin halving narrative is that we get to spend most of 2020 debating the impact of something with an n = 3 that’s been baked into the Bitcoin protocol since inception. Something that's one meaningful (but well-known) input of many that drives value to bitcoin in the midst of an 11 year parabolic bull run.

That’s why I’m glad our research analysts, Jack Purdy and Ryan Watkins, pulled together a quick primer on the halving, and dispelled some of the sillier narratives that claim we’ll see a "supply shock” in May. (I highlighted their research in yesterday's post.)

It’s tempting to buy into the halving narrative because it’s good for HODLers, but it’s probably priced in. Nic Carter had an excellent breakdown of the Efficient Market Hypothesis and how it pertains to crypto in a post last week as well. (Though, it’s a 30 minute investment to read in full.)

At the risk of contradicting my own logic and my colleagues' research, I’d like to take the other side of this debate and argue why the halving could still be a positive catalyst this time around.

It comes down to three things (that have nothing to do with the ridiculous stock-to-flow model): the hardening of the gold narrative, the introduction of large new tribes, and asset momentum.

The Hardening of the Gold Narrative

I wrote in my 2020 Theses that the very best thing we could rally around as an investment narrative was bitcoin’s pairing with gold as part of an inflation-resistant basket: a gold-digital gold mix, with bitcoin as the primary beneficiary of the generational rotation of investment assets from boomers to millennials.

This particular halving officially drops bitcoin’s monetary expansion rate below the Fed’s 2% inflation target for the first time ever.

That’s a big f*cking deal from a narrative standpoint.

Perhaps I’m overblowing this, but I believe the narrative reinforcement that “bitcoin is now less inflationary than the Fed” is a turning point that marks bitcoin’s evolution from beta to production as bona fide digital gold. It’s a real-time spin on the long-term “bitcoin has a fixed supply” drum beat.

And in this particular macro environment, that’s powerful stuff.

The Introduction of Large New Tribes

The hardening of the digital gold narrative comes at a truly ideal time when institutional investors are actually dipping their toes in the crypto waters. This new tribe is orders (plural) of magnitude larger and more influential than the existing and previous investor sets. This tribal expansion has happened (perhaps coincidentally) around the previous two halvings as well.

Following the 2012 halving, we witnessed the expansion from the techno-libertarian crowd to the retail libertarian crowd as Coinbase and Mt. Gox catapulted to prominence, and mining “professionalized". (I know most of the early mining companies were jokes/scams, but I’m talking about the rise of ASICs.)

Following the 2016 halving, we witnessed the expansion of crypto’s audience from the retail libertarian crowd to the general retail crowd. The ICO bubble helped because it attracted a mass of new speculators that were really into the 100x returns, but thought they missed the boat on bitcoin. When bitcoin came roaring back, the “blockchain not bitcoin” enterprises of 2015 gave crypto a second look.

The last boom blessed the industry with a glut of capital to build the infrastructure needed for the next super cycle. (Don’t say it. Don’t say it. Carlota Perez. Ugh, I said it.) And now this infrastructure is just sitting there waiting for these new customers who could infuse 100x more liquidity into the system than exists today.


Asset Momentum (aka the virtuous cycle)

Here’s where my experience informs a slightly different opinion from EMH hard core-ists: having run large scale conferences like Consensus, I recognize the power of marketing around price hikes and supply shortages.

For illustration, everyone in crypto knew about Consensus 2017 following our successful 2016 event. I logically expected our revenue from 2017 ticket sales would look smoother and less parabolic (i.e. more people buying in advance) than the 2016 revenue curve.

It didn’t.

In fact, there is a universal law that all conference organizers know, which is the “doubling date.” That is, approximately six weeks in advance of the event, you can take your current ticket revenue, and double it to forecast your final numbers. In crypto, I can tell you the doubling date is closer to a panic-inducing 3.5 weeks in advance.

One of the tricks you pull to extend the doubling date further in advance (so you don’t die of a heart attack or cancel the event), is to market the f*ck out of artificial scarcity and coming price hikes. The date of the price hikes or exhaustion of lower priced tickets gets people to move their asses and buy the damn tickets.

I view the halving similarly: as a crypto super cycle marketing event which will pick up steam as the price ticks north.

The market is still under-estimating the impact the hardening of the digital gold narrative, new mega-whale investor entrants, and the momentum trade will have this year. I’m a believer in the EMH, but I’m also skeptical that crypto has become a rational or efficient market.

We’ll see.

-TBI

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