Why the Bitcoin Halving Is Not Yet Priced In: Insights from Key Indicators
The Bitcoin halving event, which occurs approximately every four years, reduces the reward miners receive for adding new blocks to the blockchain by 50%. This event has historically been followed by significant price increases, but there is ongoing debate about whether these price movements are predictable and if the halving is already priced in by the market.
Stock-to-Flow Model Insights
The Stock-to-Flow (S2F) model is a popular tool used to predict Bitcoin's price based on its scarcity. The model calculates the ratio of the current stock (total supply) of Bitcoin to the flow (newly mined Bitcoin per year). Historically, the S2F model has been quite accurate in predicting long-term price movements. According to the latest data from the Stock-to-Flow chart, Bitcoin's price has consistently followed the S2F model's predictions, particularly in the periods following each halving event.
Currently, the S2F model suggests that Bitcoin's price should increase significantly post-halving, aligning with the reduction in new supply. However, the market dynamics and external factors often cause deviations in the short term. The model indicates a potential price range of $170,000 to $479,000 1 year post halving, May of 2025.
Rainbow Chart Analysis
The Rainbow Chart provides a visual representation of Bitcoin's price movements and market sentiment over time. This chart uses logarithmic regression to project price ranges and categorize them into different zones, from "Fire Sale" to "Maximum Bubble Territory."
As of now, Bitcoin is in the "Accumulate" zone according to the Rainbow Chart, suggesting that the market sentiment is still cautious and not overly bullish. This positioning implies that there is still significant upside potential, especially with the impending halving event. Historically, Bitcoin has moved from the "Accumulate" zone to higher zones ("Still Cheap" or "Is this a Bubble?") in the months following a halving, indicating that the halving impact might not yet be fully priced in. Rainbow Chart points Bitcoin heading between $132,000 to $342,000 by May of 2025.
Bitcoin's Hash Rate
A critical indicator of Bitcoin's network health and security is its hash rate, which represents the total computational power used by miners to process transactions and secure the network. Historically, Bitcoin's hash rate has surged significantly in the months leading up to and following each halving event. Bitcoin's price has not yet exceeded the hash rate like it has done in previous cycles. Keep in mind, there was around a 4-6 month delay post halving for Bitcoin's price started to exceed the hash rate.
This unusual pattern suggests that miners might be anticipating more gradual price movements, or they are facing external pressures such as increasing operational costs or regulatory uncertainties. The hash rate data, available from Blockchain.com, shows a steady but not exponential increase, indicating that the market may not have fully priced in the halving event's impact. This discrepancy between the historical hash rate trends and the current data reinforces the notion that the full effects of the halving are yet to be realized in Bitcoin's market dynamics.
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DISCLOSURE: The writer of this article is holding an investment in $BTC at the time of writing this article.
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