On February 29th, after several consecutive days of increase, Bitcoin quickly surged above $64,000, approaching the historical high of $69,000. However, due to exchange rate fluctuations, when calculated in CNY, Bitcoin has already exceeded 450,000 yuan per coin, breaking through the historical high. However, on that night, while the cryptocurrency market was still boiling, the traditional financial giant JPMorgan Chase poured cold water on the situation untimely, stating, "Analysts predict: Bitcoin will drop to $42,000 after the halving."

Recently, the cryptocurrency market has experienced many major events that have affected the price of Bitcoin, such as the continuous outbreak of the Bitcoin ecosystem and the approval of spot ETFs. The most anticipated event is the halving in just over a month, which seems to always stir up waves in the market as a significant cyclical event.

Due to the many "analyses" before each Bitcoin halving claiming that "this time is different," whether this year's halving is bullish or bearish remains to be seen. Can it bring about a bigger bull market?

01 Is the "halving cycle theory" really reliable?

The halving cycle theory uses historical bull and bear market times to prove the correctness of the 4-year halving cycle. However, some people try to find various flaws in the cycle theory to try to discredit it.

Historical Bitcoin halving schedule:

• January 2009, from the genesis block, the system initially defaulted to 50BTC per block
• November 2012, halving height 210,000, reward reduced to 25BTC
• July 2016, halving height 420,000, reward reduced to 12.5BTC
• May 2020, halving height 630,000, reward reduced to 6.25BTC
• May 2024 (expected), halving height 840,000, reward reduced to 3.125BTC

Selective acceptance is prevalent, and since most predictions are speculative, most people may only choose to believe the viewpoint that benefits them. The discussion and analysis of the cycle theory will ultimately have either a positive or negative impact, depending on which one people are more willing to listen to and believe.

02 Halving vs meme

With expectations in place, everything feels right, and any news is interpreted as bullish, prompting corresponding market reactions.

The famous "Ding Crab Effect" has always existed in specific stock markets, where every time a TV series starring Chow Yun-fat is released, investors become nervous. The Ding Crab Effect is a manifestation of herd behavior, where most people may choose to act in a certain way out of fear of going against the mainstream opinion.

Compared to the Ding Crab Effect, Bitcoin's "halving effect" seems to have more logical and theoretical support. As a crucial rule designed by Satoshi Nakamoto for the Bitcoin system, it has repeatedly instilled confidence and expectations in people.

In the cryptocurrency market, where bizarre things are commonplace, many purely speculative memes are being fervently pursued, let alone the halving, which has strong consensus. It seems that the current halving has already become a meme, and just mentioning the halving brings back confidence almost instantly.

In fact, the cryptocurrency community and the capital market need such a catalyst to ignite FOMO emotions. After each halving, there will be a lot of bullish logic and various analyses, and everything that happens will be interpreted as bullish, even leading to self-hypnosis and self-suggestion.

In a worst-case scenario, even if the cycle theory is just a kind of superstition, when enough people believe in it, it can easily become a consensus and a subconscious judgment, similar to a "biological clock."

Just as people analyzed the major bullish news of the spot ETF approval for half a year and saw a drop instead of a rise, the market is often not rational, and people are more inclined to believe in "good news is bad news" and other "laws."

03 Bitcoin halving, bullish or bearish?

From the market after the previous halvings, the cryptocurrency bull market is not entirely attributed to the halving itself, but mainly comes from the outbreak of the digital gold concept, the explosion of blockchain smart contracts, and the landing of DeFi applications. The future is full of variables, and the previous Bitcoin halvings did not necessarily bring immediate bullishness; in many cases, the market trend was still bearish before and after the halving. The Bitcoin halving can only be considered as an important catalyst for a major market trend rather than a direct factor for a bull market.

Whether the Bitcoin halving can bring about a major market trend as usual after the halving still needs to consider these variables:

Variable 1: Reduced miner rewards and increased production costs

This is also the reason why the JPMorgan Chase analyst predicted a sharp drop to $42,000 after the halving. Simply put, because after the halving, the Bitcoin block reward will directly decrease from 6.25 coins to 3.125 coins. Without a breakthrough in mining chip technology, the production cost for miners to produce Bitcoin will indeed increase significantly, which the JPMorgan Chase analyst believes will have a negative impact on its price.

In fact, every halving cycle has had people coming out to say that the halving will cause a significant increase in mining costs and lead to the withdrawal of computing power, which could affect the stability of the Bitcoin network and even lead to a serious consequence of "sudden death." However, the results of the previous halving cycles were quite the opposite. Although many people, including the JPMorgan analyst, may have overlooked the income from transaction fees brought by the Bitcoin ecosystem, according to on-chain data, the proportion of transaction fee income in miner revenue has been declining, from as high as 40% during the bull market to generally between 5% and 8% now. If the Bitcoin ecosystem cannot remain hot and the price of Bitcoin itself cannot continue to rise, then the issue of reduced miner income is indeed worth considering.

Variable 2: Rise of the Bitcoin ecosystem

The bottom-up development model of the Bitcoin ecosystem has caught many people off guard. However, it has given the digital gold Bitcoin a new pair of wings, and people spare no effort to dig into its underlying value. Perhaps beneath the surface lies an even bigger gold mine. A chart released on social media by Stacks, a top project in the Bitcoin smart contract layer, vividly illustrates this expectation.

Variable 3: Global economic recession, no interest rate cut by the US dollar

The spot ETF is just an entry point; it needs funds to flow in to be effective. Therefore, the real bullishness lies in the "flooding" of the US dollar this year, which is when the value of the ETF as a super entry point can be demonstrated. When the expectation for Bitcoin is weak, the inflow of funds into the spot ETF could also flow out at any time. If the US stock market encounters a Waterloo and a "stock disaster" with no bottom, will funds withdraw first from the Bitcoin spot ETF?

Variable 4: Bitcoin beginning to replace the safe-haven function of gold?

From the perspective of another safe-haven function of Bitcoin, the current Bitcoin is no longer what it used to be. Similarly, driven by the spot ETF, as Bitcoin moves towards becoming a mainstream global asset, it will gradually reduce volatility, highlighting its safe-haven properties as "digital gold." It's worth noting that during economic recessions and stock market declines, people usually choose safe-haven assets such as "gold" and its derivatives for risk hedging. Now there is another option; will funds flow to Bitcoin ETFs?

Recently, analysis has pointed out that the large inflow of funds into the Bitcoin spot ETF seems to have come at the expense of outflows from gold ETFs. In the first week of February, investors redeemed $858 million from gold ETFs, and as of last week, gold outflows reached $3.2 billion.

Variable 5: The law of diminishing returns, the potential energy and influence of Bitcoin halving decline

There is a logic: when everyone expects it to happen, the market often goes against it, and most people are harvested by capital.

In the past, there was a law in the stock market called "Five Poor, Six Desperate, Seven Reversal." This was a stock market legend in the Hong Kong stock market from the 1980s to the 1990s, which meant that the stock market would start to decline every May, experience a major drop in June, but then revive in July.

Because this "prediction" or "law" worked every time, by the mid to late 1990s, people started to "prevent" and "counteract" this phenomenon in various ways. After some operations, the cycle of rise and fall kept appearing earlier and even lost its reference value.

The Bitcoin block reward is gradually decreasing with each halving, meaning the reduction in each step is getting smaller. This mechanism helps stabilize the network and price in the later stages. However, future halvings may no longer have the potential energy and substantial impact of the earlier halvings. It may become more of a "commemoration day," and the future will really depend on the "Bitcoin ecosystem."

The trend of changes in the step and intensity of the Bitcoin block reward reduction in each halving cycle

Although some variables may not seem optimistic, and some are difficult to discern, hopefully, the outcome will lean towards the positive side. When a trend forms, everything will move along with it.

04 Conclusion

Perhaps the Bitcoin halving has never been the direct cause of a bull market, but rather the missing "favorable conditions" for it. The market has never been a place for right or wrong judgments and rationality. Whether the cycle theory is reliable or not seems to be irrelevant now, as there is a strong demand and logic behind it.

In 2024, despite the mixed nature of the variables, there are many narrative combinations that capital can play, including halving + ETF inflows + Bitcoin ecosystem + US dollar rate cuts, and the combination of these logics will solve all problems. In this context, the cycle theory may once again be "installed."

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