Halving Hot Takes

This post was originally published on May 02, 2019, and sent to Messari Pro subscribers.

Going with a shorter, looser format tonight since it’s getting late, and we recognize our research brief yesterday was one dense beast for you to read through and we’re working on a longer one on Tether tomorrow.

"Hidden inflation" was a key theme in Monday’s note on staking coin fundamentals and again in yesterday’s note on XRP. That got me thinking about some top proof-of-work cryptoassets that do have defined inflation schedules, and how the markets might react as Bitcoin ($BTC), Litecoin ($LTC), and Zcash ($ZEC), approach their halvings in the coming quarters. We’re dealing with small sample sizes, and assets that move based on hundreds of day-to-day variables. As such, this post is light on statistical analysis and long on gut.

We’ll start with bitcoin, as BTC’s past two super-cycles are often attributed (at least in part) to have kicked off following the asset’s first two halving events. The simple thesis for “halving = BULL” is this:

When a PoW cryptoasset experiences a halving event, the market that had been in equilibrium gets thrown out of whack with a positive supply shock. There can be a shortage in supply to meet the typical daily buying demand, putting upward pressure on the price. The headline inflation rate (rate of network dilution) also gets slashed, making the asset more attractive to speculators.

Makes sense, but will bitcoin’s next “halving" cause a rally? Probably not. In theory and in efficient markets, this would already be priced in from Day 1. Everyone on our team kinda hates the “bitcoin will rally because 2020 halving” meme because of the small sample size. Qiao has even tried to brute force a meme out of it.