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Page Text: Pantera Open Letter: BTC to Rise to 35,000 Before Halving, 148,000 After Halving – Deep Tide TechFlow
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Pantera Open Letter: BTC to Rise to 35,000 Before Halving, 148,000 After Halving
2023.08.24
Even if we think everyone knows something, it doesn’t mean there isn’t a lot of profit to be made.
Written by: Panteracapital
Translated by: Deep Tide TechFlow
This article is from Panteracapital’s August open letter “Positive Black Swan.”
Bitcoin has experienced the longest year-on-year negative return period in history, lasting 15 months (February 8, 2022, to June 12, 2023). The previous longest period was less than a year (November 14, 2014, to October 31, 2015).
We believe we have seen enough situations—
The market cannot always decline.
We believe that in combination with recent events—the XRP ruling and the recognition of institutions such as BlackRock—this will provide strong preparation for the next bull market for digital assets, in addition to the expected Bitcoin halving in April 2024.
Bitcoin Halving: Background
The currency supply function of the Bitcoin protocol is in stark contrast to quantitative easing. The Bitcoin code stipulates a total issuance of 21 million coins, and the supply of new coins will decrease over time.
Currently, 6.25 bitcoins are issued every ten minutes, and every four years, the “block reward” is halved, hence the term “halving.” This process will continue until the year 2140, when 21 million bitcoins will be fully developed.
Bitcoin’s supply and coin distribution rules are entirely based on mathematics and are designed to be predictable and transparent.
“The total circulation will be 21 million. When network nodes generate blocks, coins will be allocated to them, halving every four years. The first four years: 10.5 million coins. The next four years: 5.25 million coins. The next four years: 2.625 million coins. The next four years: 1.3125 million coins. And so on.”
—Satoshi Nakamoto, Cryptography Mailing List, January 8, 2009
Next Year’s Halving
The next halving is expected to occur on April 20, 2024. The mining reward per block will decrease from 6.25 bitcoins to 3.125 bitcoins.
The efficient market theory states that if we all know it will happen, then it has already been priced in. Quoting Warren Buffet, “The market is almost always efficient, but the differences between markets, to me, are almost always 80 billion dollars.” Therefore, even if we think everyone knows something, it doesn’t mean there isn’t a lot of profit to be made.
“Investing in a market where people believe in market efficiency is like playing bridge with someone who has been told it doesn’t do any good to look at the cards.”
—Buffet, 1984, quoted in Davis, 1990
If demand for new bitcoins remains stable while the supply of new bitcoins is halved, it will force prices to rise. Prior to the halving event, demand for Bitcoin also increases as people anticipate a price increase.
For years, we have emphasized that halving is a significant event but takes years to complete.
Historically, Bitcoin bottomed out 477 days before the halving, climbed before the halving, and then experienced an explosive rise. From the halving to the peak of the next bull market cycle, the average duration of the post-halving rebound is 480 days.
If history repeats itself,
Bitcoin’s price should bottom out on December 30, 2022.
The actual low point occurred on November 9, 2022, just over a month earlier than expected, coinciding with the FTX event.
Then we will see a rebound in early 2024, followed by a strong rebound after the actual halving. The chart below shows the potential scenario if Bitcoin repeats the performance of previous halving events.
The current price of Bitcoin is above our predicted price of $35,500 per Bitcoin on the halving date, now exceeding the prediction by 7%.
Price Prediction Based on the Stock-to-Flow Model
The framework we use to analyze the impact of halving is the study of changes in the stock-to-flow ratio at each halving. The first halving reduced the supply of new bitcoins by 17% relative to the total circulating bitcoins. This had a significant impact on the new supply and also on the price.
As the rate at which each halving reduces the supply decreases from the previous halving to the next, the impact of each halving on the price may gradually diminish. The chart below shows the percentage of supply reduction during past halvings compared to the circulating bitcoins at that time.
The 2016 halving reduced the supply of new bitcoins to only one-third of the first halving. Interestingly, its impact on the price was also only one-third.
The 2020 halving reduced the supply of new bitcoins by 43% compared to the previous halving. Its impact on the price was as high as 23%.
The next halving is expected to occur on April 20, 2024. Since most of the bitcoins are already in circulation now, each halving will almost halve the new supply.
If history repeats itself, with the next halving, Bitcoin will rise to $35,000 before the halving and $148,000 after the halving.
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