Your Next Trade: The ‘Halvening’

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  • Oh, what’s this?  
  • History to repeat
  • Plus, how high could this go if Wall Street really goes all in?

We may have a first here.

Bloomberg reports that a US pension fund is investing into a venture capital vehicle dedicated to crypto and blockchain assets.

No other pension fund in America has done this, as far as anyone is aware.

Now this is interesting…

It follows on from the previous news last year that David Swenson from Yale University’s endowment fund is building an allocation to crypto.

This is kind of institutional capital with billions to invest…and could signal a possible revival in crypto from its current bear market. 

Arguably, what’s holding them back is the regulatory and custodial ‘green lights’ they need.

Those are slowly being built.

However, a clock is also ticking loudly…

It’s called the ‘halvening’.

Around 27 May 2020, a very significant event happens for bitcoin.

The reward for mining bitcoin will be cut in half…from the current 12.5 bitcoins to 6.25.

You need to know a little about how bitcoin works to get this.

The ‘miners’ solve a mathematical puzzle for each block as part of the effort to keep bitcoin’s blockchain secure and validated.

Their reward for this is being paid in newly minted bitcoins.

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That’s also how bitcoin’s supply is brought into the market.

But built into the code is a fixed number of bitcoins that will ever be released.

That’s part of the appeal of bitcoin as a store of value in the first place.

So the incoming supply of bitcoins — once May 2020 rolls around — will be cut in half.

This is, potentially, just as Wall Street and institutions move in and allocate a portion of their assets to the crypto market.

They will start with bitcoin first. It has the largest market cap and most established position.

Bitcoin’s appeal — for investment managers — is that it’s uncorrelated to other assets alongside its potential as a digital store of value and payment system (via the Lightning Network).

You can see the setup for the trade already…demand rising just as supply goes substantially down.

Now…you might be inclined to think that May 2020 is a while off.

But the market is always looking ahead.

Did we just get a clue on timing? Possibly…

A rally to begin in 2019

Litecoin is a crypto similar to bitcoin. It’s had a minor rally over 2019 so far.

This could be traders pricing in its halvening, due to happen in August.

Also of note is that two previous halvenings for bitcoin, in 2012 and 2016, were preceded with a rally.

Some rough calculations suggest bitcoin could start rallying around November this year based off similar timing to Litecoin.

But it’s also possible — with this effect more broadly known now — that it happens earlier as more people and money position for the move.

Naturally, there’s no guarantee there will be a rally at all.

But that’s what makes this latest pension fund news so compelling.

Continual hints and news of institutional capital moving into crypto will likely ramp up the pricing pressure on bitcoin before May 2020.

Don’t forget the massive bitcoin rally into December 2017 preceded the launch of bitcoin futures at the time.

It’s certainly something to watch for…

Are you trading or investing?

There are probably two ways to approach this.

One is to accumulate bitcoin — if you agree it’s here to stay — on its current weakness. Dollar cost average your way in, bit by bit.

Another approach is to preserve your capital until we see a stronger trend form in the bitcoin price.

This would be for the active trader… The downside is that you might jump on another weak rally that fizzles out and triggers your stop.

Or you pass completely, of course. Only you can decide if it’s worth the risk.

But if you’re hunting for potential profitable moves in the market, the coming halvening could be the catalyst to get bitcoin revving again.

In 2017, retail buyers drove it to 20,000. One wonders where it could go should the full force of Wall Street enter the market.

Just a thought.

Regards,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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