Bitcoin Halving Effect: A Multi-Factor Analysis of Price Drivers

Many people believe that "Halving" primarily affects Bitcoin through scarcity, thus stimulating hoarding and speculative behavior. However, "Halving" actually refers to the reduction in production - the same computational power cost is invested across the network, but the output of Bitcoin is halved.

If the total network hash rate is halved, the mining cost will remain unchanged. However, due to expectations of price increases and sunk costs such as mining machine costs, the hash rate of Bitcoin is likely to exceed the levels before the halving. This means that as long as the hash rate exceeds half, the production cost of Bitcoin will increase. As more high-cost Bitcoins are mined, the price will be pushed up. This explains why the peaks of Bitcoin bull markets often occur more than a year after the halving, rather than around the time of the halving.

Therefore, the "Halving" driving the bull market is not only an emotional factor but also a cost factor. Of course, costs do not determine prices; it is a common phenomenon for cryptocurrency prices to fall below costs.

Litecoin Halving Performance Analysis

There are opinions that the Litecoin Halving performance in 2023 will not be as good as in 2019, and based on this, it is speculated that this round of Bitcoin Halving may also perform poorly. The Litecoin Halving in 2019 occurred in August, but the price peak was in June, which was clearly influenced by the expectations of the Halving.

However, we should not ignore an important factor: in June 2019, the Federal Reserve began to cut interest rates. This timing is hard to say is a coincidence.

Macroeconomic Environment and Cryptocurrency Bull Market

Many cryptocurrency investors are dismissive of macroeconomic factors, as Bitcoin has had a low correlation with the US stock market in the past. However, in reality, Bitcoin may have always been influenced by macro cycles.

We are familiar with the relationship between Bitcoin Halving and price peaks:

• The first Halving on November 28, 2012, reached its peak about 12 months later.
• The second Halving occurred on July 9, 2016, ( approximately 17 months later reached its peak.
• The third Halving occurred on May 12, 2020, ), reaching its peak about 18 months later.

However, we may have overlooked an important correlation:

• In January 2012, the peak growth rate of M2 in the United States, about 22 months later Bitcoin reached its peak.
• In October 2016, the peak growth rate of M2 in the United States, about 14 months later Bitcoin reached its high point.
• In February 2021, the peak growth rate of M2 in the United States, about 9 months later, Bitcoin reached its peak.

It is worth noting that there is an astonishing consistency between the U.S. elections and Bitcoin peaks:

• In the November 2012 election, Bitcoin reached its peak about 12 months later.
• In the November 2016 election, Bitcoin reached its peak about 12 months later.
• In the November 2020 election, Bitcoin reached its peak about 12 months later.

The design of Bitcoin seems to take into account the policies and economic cycles of the United States. In recent elections, most occurred near the peaks or near peaks of the growth rate of M2 money supply, which indicates a phase of accelerated monetary expansion. Loose monetary policy may benefit economic prosperity and also increase market liquidity, with some funds flowing into speculative markets.

Outlook for 2025 and Beyond

Analysis shows that Bitcoin's four-year bull market cycle is not only driven by "Halving" but also influenced by macro factors. Therefore, Litecoin's poor performance in the 2023 Halving does not mean that the bull market in 2025 will be affected. The positive effect of Bitcoin Halving still exists, the Federal Reserve will eventually cut interest rates, and the dollar liquidity will shift from tightening to easing.

Considering the impact of macroeconomic factors, the bull market cycle may be delayed until 2026 from the start of interest rate cuts to the peak of the M2 growth rate, instead of the previously expected end of 2024. The specific timing still needs further observation.

Timing of Investment

Regarding the timing of investment, we need to wait for the release of this month's Federal Reserve dot plot, which may reveal two important turning points: stopping interest rate hikes and starting interest rate cuts. These turning points may bring about a short-term sentiment rebound, but the outlook is not optimistic. Since 1960, the M2 money supply in the United States has experienced negative growth for the first time, and dollar liquidity is tight. Even if interest rate cuts begin, we are still in a high interest rate phase, and earlier high-interest loans are entering a repayment pressure period, with risks still present.

Investors need to remain patient. Recently, some small-cap tokens have shown active performance, and there may be short-term opportunities, but caution is still required in the long term.