Halving: Diminishing returns and degrading coefficient.

3 hari lalu

To be honest, I think the only thing someone has to do to make a working theory on the halving is to look at the coefficient between SPX and BTC.

The 30 co during this "Cycle" has been over 70%. Which is higher than the co of BTC forecast and actual price move.

This coefficient would drop to around 0.5 if BTC trades 10 - 20K lower (which would also annul all the rules of the halving, essentially breaking the thesis).


But apart from all that, let's take a look at the diminishing returns and degrading coefficient that tell us the halving seems to be losing it's prediction power in BTC.



Diminishing Returns of Bitcoin Halvings

Bitcoin Halvings: Occur every 4 years, cutting the mining block reward in half to control Bitcoin's supply, leading to potential price increases due to greater scarcity.

Historical Halving Price Increases:

1st Halving (2012): Bitcoin price surged by ~5,500%.
2nd Halving (2016): Price increased by ~1,250%.
3rd Halving (2020): Price rose by ~700%.
Trend of Diminishing Returns: The percentage gains after each halving are decreasing, signaling that the scarcity effect is becoming less impactful.

Factors Contributing to Diminishing Returns:

Market Maturation: As Bitcoin’s market grows, the reduced issuance becomes less significant.
Supply Dynamics: With the cap approaching 21 million BTC, the absolute reduction in new BTC per halving diminishes, reducing scarcity.
Conclusion: While price increases continue, the diminishing percentage gains suggest halvings are less influential over time.

The Diminishing Coefficient of the Halving Thesis and Real Outcomes

Halving Thesis: Predicts price increases due to reduced Bitcoin supply (assuming constant or rising demand).

Evidence Supporting the Thesis:

Post-halving price rallies support the thesis: significant increases in 2012, 2016, and 2020.
Challenges to the Thesis:

Diminishing Impact: The percentage price gains are reducing (5,500% → 1,250% → 700%), suggesting the scarcity effect weakens over time.
External Factors:
Market Sentiment: Speculative buying can exaggerate price movements.
Macroeconomic Conditions: Inflation and financial crises may overshadow the halving's effect.
Miner Dynamics: Lower rewards may affect security, but higher prices have historically balanced this out.
Short-Term vs Long-Term: Short-term reactions can be volatile, but the long-term trend remains upward, indicating the halving thesis still holds.

Correlation Coefficient Between BTC and SPX

What it Measures: The correlation between Bitcoin’s price movements and the S&P 500 (SPX), reflecting Bitcoin’s role in the financial landscape.

Historical Context:

Early Years: Bitcoin had a low or negative correlation with SPX, often moving inversely.
2019: BTC showed a sharp negative correlation with SPX during its bull run, suggesting it was a hedge against traditional markets.
Recent Trends:

In the past 5 years, especially during macroeconomic disruptions (e.g., COVID-19), Bitcoin has shown a strong positive correlation with SPX.
The 30-day correlation has frequently exceeded 70%, indicating Bitcoin’s behavior as a risk asset in times of market stress.
You can copy and paste the a

3 hari lalu

Nota

If you do the adjustment for the projected high in BTC accounting for the diminishing returns, it predicts a top somewhere 100 - 120K.

Just a point of interest.

I do think this theory is essentially useless. It doesn't pass logic testing.

3 hari lalu

Nota

I've looked at this in a variety of ways and come to the conclusion it can be debunked with any maths that takes that critical step past the 4 times table.

3 hari lalu

Nota

Here's some additional numbers on the coefficient if the drop continues.

Firstly, let's clarify I am using a metric more friendly to the coefficient than most because I am accounting for the diminishing returns. This puts the top somewhere 100 - 120K, which is about 50% lower than the common target for the halving - based on the common target, the coefficient has already fallen to a level that's means it's generally unmeaningful and 10K lower it's failed.

Based on the more favourable one looking at time and price forecasts along with the expected retracement lows, BTC trading under 75K gives a coefficient of something close to 0.46. Meaning 56% of the move was outside the expected move.

Based on the common forecast, this would take the coefficient to a level where it's statically irrelevant.

3 hari lalu

Nota

I've asked and asked and asked for people to tell me the invalidation criteria for the halving and they always dodge it.

But if we take the theory on face value, the answer is about 60K.

If 60K hits, the halving theory has failed and anything referencing it after that is revisionism.