Author: Deep Tide TechFlow Cleaning
At 23:00 on August 2nd, the block height of Litecoin (LTC), once known as “Bitcoin’s silver”, reached 2,520,000, and the block reward officially halved. The mining reward decreased from 12.5 LTC to 6.25 LTC.
Litecoin’s official Twitter account immediately tweeted to celebrate.
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However, the market poured cold water on it, and the price of LTC fell all the way, dropping 7% in 24 hours.
Although there can be a reasonable explanation that “good news is bad news”, everyone will sell after the halving to end their profits. But the key issue is that LTC did not rise much before the halving, and it mostly fluctuated along with the market. Therefore, most people are not “selling for profit” but “forced to cut losses”.
Whether it is digital silver or the halving narrative, neither was able to stimulate the price of LTC. Of course, what everyone is more concerned about is whether Bitcoin’s halving next year still has a chance?
In everyone’s view, Bitcoin’s halving is undoubtedly a deterministic event that directly leads to price increases. However, “correlation” does not equal “causation”.
Looking at the timing of Bitcoin’s halving, the US stock market also rose almost simultaneously. It is impossible to say that Bitcoin’s halving caused the rise of the US stock market, or to re-explain it as “the rise of the US stock market driving the rise of Bitcoin.”
Price is determined by both supply and demand. At the moment after Bitcoin’s third halving, the impact of Bitcoin’s halving on supply has become smaller and smaller. After Bitcoin’s halving in 2024, the individual block reward of Bitcoin will decrease from 6.25 to 3.125.
Therefore, what will truly determine the price of Bitcoin is demand, that is, whether there will be new external funds flowing in.
Looking back at the bull market in Bitcoin that started after the halving in 2020, people may not attribute it to Bitcoin’s halving, but to “the pandemic” and “the Fed’s massive liquidity injection”. Under extremely loose liquidity, the US stock market soared, a large amount of funds entered the Grayscale Bitcoin Trust, Grayscale continued to buy Bitcoin, and later Tesla also bought Bitcoin, leading the entire market into madness.
Therefore, where the “money” comes from is the key to determining whether there will be a cryptocurrency bull market.
Does this mean that the event of Bitcoin’s halving is not important? No, Bitcoin’s halving still has a powerful “narrative” and “expectation” value.
In the cryptocurrency market where there is almost no fundamental analysis, price fluctuations often rely on “narratives” and “positive expectations” to drive. It has been proven that narrative value is often effective.
When everyone is willing to believe that the “Bitcoin halving” will bring a bull market, then everyone will rush to buy, thus really bringing a bull market.
This is also what Soros calls “reflexivity”.
The stock market is the same. The stock market is also a voting machine. Because in the short term, the number of people buying stocks ultimately determines whether the stock price rises or falls, not the company’s performance itself. The more people buy, the more the stock price rises. So when buying stocks, most people are actually thinking whether others will think this stock is good and whether they will also buy this stock.
The financial market is the result of everyone’s game of consciousness. I will think about how others think, and others are also thinking about how I think.
Under reflexivity, asset prices will never equal their intrinsic value. They are mostly in a state of virtual high, and as they continue to rise, people will think that the stock is more powerful and will continue to buy.
This cycle continues until the bubble bursts. The same process happens during the decline. This determines that prices will always oscillate around value, from one extreme to another.
Therefore, from the perspective of the industry as a whole, only by making most people believe that the “Bitcoin halving” will bring a bull market, can there be a real bull market.