Offchain: Half a Chance

Offchain: Half a Chance

The Halving is less than six months away. It’s all uphill from here, right?

Alright, cards on the table. I legitimately thought there was a 50/50 chance that we would never see a crypto-wide upswing again. That the damage wrought by the endless scandals, macroeconomic headwinds, confidence-sapping hacks and encroaching regulatory forces would mean that the crypto casino would shutter its doors for good. No money in, too much money out and soon you’re longing for the days when it was only a 95% drawdown.

Well, boy am I glad to be wrong. The last few weeks have felt little short of miraculous as everything from A+ quality to memecoins scraped off the bottom of a septic tank have come roaring back to life. Chart structures have been broken again and again, and this time to the upside. Those of us still standing have remembered what hope felt like.

But, really, should we be surprised? Talk to a Bitcoin maxi and all of this up-and-down, boom-and-bust action is a function of one thing: Bitcoin’s ceaseless, tick-tock progress towards each Halving. And with less than six months until the next one, everything in crypto is being dragged inexorably into its orbit. We better hope that history repeats.


Signal and noise

During the last bull market, a Twitter commentator by the name of PlanB amassed an almost religious following with his S2F (stock-to-flow) theory of Bitcoin price appreciation. Essentially this was an argument that Bitcoin’s hardcoded scarcity mechanic meant that its increase in value could be precision modeled.

Unfortunately as with most cult leaders, his overly confident predictions – US$135k by December 2021! – foundered in the face of crypto’s unerring ability to hit itself in the balls.

Yet cult leaders often build their followings around a kernel of truth. And PlanB recognised the basic trend of Bitcoin’s price should function as an almost Moore’s Law guarantee of progress. Yes, it’s been turbulent these last couple of years. Yes, the price dropped below the previous cycle high in a way it never had before.

But with six months until the next Halving, Bitcoin is trading at around 50% of its all-time high. Six months before the 2020 Halving it was trading at around 50% of its all-time high. And six months before the 2016 Halving it was trading at, you guessed it, around 50% of its all-time high.

Fate and folly

There’s no such thing in life as a sure thing and nowhere is that truer than in trading. If you want to survive, you need to constantly be looking for the reason your narrative fails.

Yet in this case you can almost reverse the onus of proof. The brute mechanic of the Halving means you can pretty much start with a presumption of trend continuation. The Halving will happen whether we want it or not and suddenly there will be half as much Bitcoin entering the system as there was 10 minutes before. What story can you tell that doesn’t lead to the trend of the last 15 years continuing in some way? Are there fewer users or nodes or less interest? Have the miners abandoned it? Is it more vulnerable than it was?

Not that this means it’s all smooth sailing from here. Another Twitter analyst, Rekt Capital, recently posted his 5 phases of the Bitcoin Halving and it’s a resource to keep close over the next 12 months. Right now things are good, but historically there has been significant volatility in the lead-up to the big dance, with 30-40% retraces almost par for the course. And where Bitcoin leads, alts rush past and throw themselves bodily over a cliff.

We’re not in the game of providing trading advice here, but it’s worth remembering that in previous cycles the greatest gains have typically gone to those with the most patience – the ones who could ignore the charts, shrug off the downturns and wait out the doldrums.

Crypto is good at making you think and act in the shortest of terms. Yet the history of the Halving suggests that the story is actually one told over years instead. It’s just that sometimes not doing anything can be the hardest thing of all.

Luke from CoinJar

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