Dash Talk

Crypto Investment Advisory Firm Ranks Halving Scenarios

On May 4, CoinShares Research put out its ranking of the likelihood of various halving scenarios as well as their potential impact on the industry.

Bitcoin (BTC) halving has captivated the imagination of the crypto industry and there is no lack of outlandish predictions forecasting anything from the death spiral that will destroy the Bitcoin network, to the one predicting its parabolic rise. Earlier today, this subject was also discussed in another episode of Cointelegraph Talks.

In the latest post, CoinShare’s head of research, Christopher Bendiksen, analyzed five of the most popular scenarios and concluded by proposing his own.

Source: CoinShares Research

Source: CoinShares Research

Negative scenarios

First, Bendiksen rules out the doomsday death spiral scenario that contends that the halving of the mining reward will disincentivize Bitcoin miners from mining. Bendiksen believes that the empirical evidence from the two previous halvings makes highly unlikely. Andreas Antonopoulos also recently opined that this scenario is improbable.

Another pessimistic scenario is based on the assumption that professional investors are “buying the rumor” and “selling the news.” Bendiksen posits that this scenario is hard to evaluate as traders typically do not share their strategies. In any case, he does not expect to have a major impact on the price.

The next negative scenario that the researcher examines, equates halving to the price drop. When Bitcoin price drops, miners are forced to sell more of their coins to sustain themselves, creating sell pressure. Although halving has an identical impact on the miners’ revenue as halving of the price, its impact on the market is not the same. Keeping constant all other factors, miners do not have to sell more coins to continue operations.

Positive scenarios

The most optimistic scenario is based on the stock-to-flow model applied to Bitcoin valuation by Safedean Ammous. Although this model has not been falsified yet, Bendiksen remains skeptical about its hyperbolic forecast.

After he had analyzed all the popular scenarios, Bendiksen proposed his own positive forecast. He believes that the combination of the Black Thursday and the impending halving of the block reward has forced weak and inefficient miners out. The remaining miners have lower costs and will be forced to sell less of the newly-created supply to cover them. In addition to the reduction of the new supply, it should have a positive long-term impact on the market:

“These dynamics, in combination with the macroeconomic tailwinds presented by global governments, and the existing and growing inflows into passive bitcoin investment products we’re currently observing, could cause a perfect storm for the bitcoin price over the mid- to long-term.”

Already priced in?

Of course, there is another possible scenario — the halving having no impact on the price. Several analysts have expressed the opinion that the halving as a known event is already priced in. With less than a week until the big day, we do not have to wait too long to find out which scenario will play out.

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