Today's special edition of technical analysis focuses on bitcoin. It is halving that it is one of the main foundations that affect its price. The scarcity of bitcoins will increase again, thanks to the reduction of the reward to miners by half. We asked a trader Jakub Kraľovanský from company Trader 2.0 to share his view on the halving.
Bitcoin is awaiting a very special event in exactly one week. Halving is a predictable moment that has already been set in the source code by Bitcoin creator Satoshi Nakamoto and that happened every 210 000 blocks (approx 4 years). Let's see what can happen to the price of bitcoin according to the halving.
What is halving?
But first, let's look at what halving is. Satoshi Nakamoto has programmed that bitcoins will be released into circulation gradually with each block mined so that their final amount is a maximum of 21 million.
Bitcoin transactions are grouped into blocks that follow each other to form a blockchain. Mining of one block takes about 10 minutes in the Bitcoin network, and at the beginning of mining, ie in 2009, the miner received as a reward for mined block as much as 50 BTC. However, this amount is always halved after 210,000 mined blocks, which occurs approximately once every 4 years.
Today, miners receive 12.5 BTC as a reward for each block. On May 12, 2020, a block with the number 630,000 should be mined and each subsequent one will have a reward of only 6.25 BTC, ie half of the current reward. To that date, approximately 87% of all bitcoins have been mined.
The annual inflation rate or the number of newly mined coins is now 3.65%. After 12 May 2020, it will be halved, to about 1.8%. In the next 4 years, it will be only 0.9% and so it will continue.
Technical analysis according to Trader 2.0
I think we are in a specific period because the situation around COVID-19 was quite fundamentally affecting the crypto world. It would be interesting to see what the analysis would look like before COVID-19 or without it. However, in this article, I will prepare several scenarios and end with the current situation. So let's do it!
In the current situation, we are still in a huge triangle and so far we have not been able to break through to either side. By no means would I be talking about a bull-run now. I personally take the view that halving will only have an impact on price in the long run. I wouldn't expect any miracles in the short term, nor would I be overly bullish. Bitcoin now correlates with the classic markets, and so far we are still waiting for the moments when it would somehow significantly detach from the regular markets.
1. Extremely bearish scenario
Let's start with the worst and what no one would want to hear, and that's a new low. In the worst-case scenario, we'll go to a new low somewhere around $ 1,800. I think it is quite unlikely, but of course, we must mention it as an option.
I consider the weekly MA200 and the lower edge of the triangle as very strong support on this way down. However, this scenario could be active if COVID-19 caused extreme panic and sell-offs in traditional markets, which would thus begin to collapse. In that case, it would certainly have an impact on cryptocurrencies. However, we are talking about a scenario where almost everything from the S&P 500, through silver and other assets would go to a new minimum.
2. Classic bearish scenario
This scenario is such that we would return to the level of 5500 USD. In this case, we would test the bottom edge of the channel and weekly MA200 again and probably for the last time. In addition, these values would be best to buy before the next bull-run! This is a scenario that I personally like at the moment and I would like to trade it. What I don't like, however, is that a huge amount of traders see it also, and cryptocurrencies usually react to such big expectations so that the market suddenly shocks us and something unexpected happens.
3. Bullish scenario
In that case, we would be stopped by one of the mentioned trend lines. But not for long! Even if we couldn't cross the trend lines for the first time and create new highs, we would slowly and boringly fall - as is typical with Bitcoin. And in the fall of this year, perhaps we would finally see proper growth. This possibility seems quite probable to me as well as the previous one, but the problem is again that it is registered by too many traders.
Another option is instant bull-run. In such a case, we would already overcome the trend lines in the following movements and create a higher HIGH, which we would then confirm as support and we would have an open path upwards. If we get above the trend lines and can create new HIGH, which we will stabilize as support, then we can take it as the beginning of a new bull-run.
I have mentioned four basic scenarios that we can calculate at the moment. In addition, it is possible that Bitcoin will completely fill the entire triangle until the outcome of the apex. However, I do not count on this possibility so much and in addition, we would have a year full of boredom, so nothing for traders!
I have no doubt that halving is a strong bullish event and that it will have an overall impact on Bitcoin. In the short term, however, it may not have an impact, so I don't have pink glasses unnecessarily and I prefer to stay on my feet. In addition, we have an unprecedented situation around COVID-19 and uncertainty in traditional markets.
Realize that Bitcoin has never experienced an economic crisis, and we can only imagine how it will react in it. Yes, Satoshi Nakamoto created Bitcoin in response to the banking crisis in 2008, but will Bitcoin really serve as a hedge against traditional markets? Of course, we would like that, but we cannot rely on it. Moreover, nothing is ever certain in trading, we always talk only about probabilities and readiness for given scenarios, which may or may not be fulfilled.
There are too many variables in the air that can turn Bitcoin to one side or the other. However, I am very much looking forward to the whole period and I will try to get the most out of it!