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Asset management firm Bitwise has cautioned that data suggests the upcoming Bitcoin halving is a “sell the news” event. However, the firm explained that the market likely “prices in the short-term impact of the halving but underestimates the long-term impact,” emphasizing that the data “also suggests that, long-term, the halving may be conducive to price appreciation.”
Bitwise Asset Management has published a report, authored by Chief Investment Officer Matt Hougan and senior crypto research analyst Juan Leon, about what investors can expect from the approaching Bitcoin halving.
“The biggest question surrounding the halving is whether or not the impact of cutting new supply in half is priced into the market before the halving,” they wrote. “On the one hand, halvings should be great for bitcoin’s price, as reducing new supply by half should increase scarcity. On the other hand, we have known when halvings would occur since bitcoin’s inception. In an efficient market, the impact should already be accounted for.” Bitwise emphasized:
Rather than dwell in theory, let’s look at the data. On a short-term return basis, the data suggest that the halving is a ‘sell the news’ event.
The upcoming halving is expected to bring down bitcoin’s annual inflation rate from 1.73% to 0.85% as a result of the reduction in new block rewards from 6.25 to 3.125 bitcoin, the report describes, adding that “At bitcoin’s current price, that implies $11.6 billion of new annual supply removed from the market.”
Bitwise further detailed that the price of bitcoin has risen 19.03% on average in the month preceding the halving, compared to 1.70% in the month following the halving. “Zooming out, however, the reverse is true: On average, bitcoin has risen 3,224% in the year following the halving, versus 185% in the year preceding it,” the asset management firm said, while pointing out that those numbers are skewed by the huge return of 8,839% in the year following the 2012 halving. “But ignoring absolute numbers, returns have been higher post-halving than pre-halving in each of the three historical examples we have,” the report notes.
While cautioning that “we have limited data” with only three historical examples, Bitwise concluded:
Still, the picture they paint is relatively intuitive, suggesting that the market prices in the short-term impact of the halving but underestimates the long-term impact. The data also suggests that, long-term, the halving may be conducive to price appreciation.
Bitwise has been bullish on the price of bitcoin. Last month, Hougan said: “Long-term, we believe bitcoin is in a raging bull market.” He expects the April halving to be “the most impactful we’ve seen.” The executive also stated that the bitcoin bull market won’t end early, expecting an “everything season.” He noted that BTC could top $200K this year, citing “too much demand and not enough supply.” The CEO of Bitwise is similarly bullish about the future of BTC, stating in February that the cryptocurrency could hit $250K sooner than the firm previously predicted.
