Bitcoin price momentum starts to build ahead of halving
Bitcoin gains highlight the ongoing bullish case, with the impending halving event potentially seeing the beginning of another period of substantial upside.
Bitcoin on the rise ahead of halving
Bitcoin has been surging ahead of the May halving event, with investors eagerly anticipating the positive impact of a tightening in supply that comes once every four years.
That halving process doubles the difficulty for bitcoin miners, and has historically brought huge gains both prior and following each of the two previous events.
As things stand, we are in line to post a 182% rise for bitcoin since the lows of December 2018, and the surge we are currently seeing paints a bullish picture for the months following this third halving.
From a wider perspective, the huge growth in central bank easing and government debt does highlight why many feel the need to store their wealth in alternative assets to avoid the apparent depreciation that could be on the cards.
As is typically the case, this bitcoin surge has also resulted in drive upside for many of the other popular coins, with the trajectory of bitcoin often followed by its smaller cousins.
Crucially, this drive higher appears to be feeding into the historical pre-halving trend that could point towards huge upside over the coming year.
The chart below highlights the trend over the past two halving events, with strong upward momentum playing out for roughly 12 months either side of the halving event. In essence, each four year period between halvings will see a cooldown period, where prices eases back in preparation for the next leg high.
Bitcoin halving: is history repeating itself?
The table below provides some details on those phases, bringing the recent experience into play.
- The first two halvings saw the market bottom out between 13 and 18 months ahead of the event itself, with the price appearing to fall perfectly between those figures this time around (15 months)
- Pre-halving gains are typically moderate in comparison to the post-halving surge, with the market finding its feet following extended period of downside
- Utilising the previous two occasions as a yardstick for future performance, this would point towards a period of rapid upside for bitcoin over the 12-14 months following this upcoming halving event
|Halving||Date||Pre-halving bottom||Pre-halving return||Post-halving peak||Post-halving return||Cooldown period||Cooldown return|
|Bitcoin launch||3 January 2009|
|Halving 1||28 November 2012||13 months||531%||12 months||9491%||14 months||-277%|
|Halving 2||9 July 2016||18 months||277%||17 months||3031%||12 months||-182%|
|Halving 3||Expected May 2020||15 months||182%||??||??||??||??|
Coronavirus response builds stronger bitcoin case
While many will not believe in bitcoin or cryptos per se, this is certainly the environment that many have perceived these products as protecting people against.
A huge ramp up in stimulus from a government and central bank level means huge growth in debts and money printing going forward. The crisis is unlikely to end anytime soon despite the fact that we are looking at a period of substantial upside for stocks.
The truth on the ground is very different and the desperation to keep markets pushing higher means we are likely to see more and more stimulus come into force. That is good for bitcoin and other non-fiat assets such as gold.
Short-term decline could bring better buying opportunity
On a shorter time frame, we can see a huge recovery since the coronavirus lows in mid-March. That rally has taken us back into and above the crucial $9216 resistance level.
As such, further upside does seem likely over the medium term, with period of weakness likely to provide a bullish entry opportunity. Certainly the gains of the past week have taken us into an overbought situation which could result in a period of weakness over the coming days.
The breakdown back below 80 on the stochastic highlights that falling momentum. However, whether we see such a move or not, there is a growing story of outperformance for bitcoin which could last for another year if historical experience is anything to go by.
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