Bitcoin Halving Hype: Separating Fact From Fiction As Volatility Expectations Rise

As the highly anticipated Bitcoin halving approaches, scheduled for April 20, 2024, the cryptocurrency community is abuzz with speculation about its potential impact on the market.

The halving, a pre-programmed event that halves the rate at which new bitcoins are created, has historically been seen as a bullish catalyst for long-term holders.

However, despite the excitement surrounding the event, some analysts caution against expectations of significant volatility in the immediate aftermath of the halving.

TLDR

Bitcoin’s impending reward halving, while monumental, is unlikely to cause a significant volatility explosion, according to Amberdata’s Greg Magadini. Options implied volatility has marked higher in the run-up to the halving, indicating increased price turbulence, but Magadini believes paying a volatility premium for a highly predictable outcome is not worth it. The impact of Bitcoin’s reward halving on its native cryptocurrency and miners has been well documented, with the cryptocurrency historically producing stellar rallies in the 12-18 months following the halving. The current cost of mining with Antminer S19 XPs will rise from $40,000 to $80,000 after the halving, and for miners to remain profitable, the BTC price must rise above $80,000 after halving. Historically, Bitcoin has experienced significant price increases after each halving, but it has also seen significant crashes within a year of the halving,

Greg Magadini, director of derivatives at Amberdata, believes the Bitcoin halving is unlikely to cause a significant volatility explosion.

In a recent newsletter, Magadini said,

“From a qualitative perspective, I continue to believe that paying a volatility premium for a highly predictable outcome (the BTC halving) is not worth a volatility event premium.”

He argues that the impact of Bitcoin’s reward halving on its native cryptocurrency and miners has been well documented over the years, leaving little room for a surprising outcome.

Despite Magadini’s skepticism, options implied volatility marked higher in the run-up to the halving, indicating increased price turbulence in the days surrounding the event.

However, he points out that recent major crypto events, such as Ethereum’s Dencun upgrade, Shanghai upgrade and spot BTC listings, have disappointed buyers of implied volatility when realized volatility did not materialize by large margins.

While the halving may not lead to immediate volatility, its impact on mining costs and profitability is significant. According to data from Ki Young Ju, CEO of CryptoQuant, the current cost of mining with Antminer S19 XPs will increase from $40,000 to $80,000 after the halving.

#Bitcoin mining costs will double by the end of the month after the halving, jumping from $40K to $80K for S19 XPs, which are commonly used by US miners.

Chart by @clayop pic.twitter.com/iElf2i7Kok

— Ki Young Ju (@ki_young_ju) April 8, 2024

For miners to remain profitable and continue their operations, the BTC price must rise above $80,000 after halving. Historically, BTC prices have seen multiple jumps after each halving, with the price increasing 9,000% after the 2012 halving, 4,200% after the 2016 halving, and 683% after the 2020 halving.

However, it is crucial to note that while halvings are generally considered bullish for Bitcoin, historical data shows that BTC often experiences significant crashes within a year of each halving event.

These crashes caused Bitcoin’s price to drop by more than 80% on average. The first halving in 2012 resulted in an 85% decline in 2013, the second halving in 2016 saw an 84% decline in 2018, and the third halving in 2020 was followed by a 77% correction in 2022 .

Investor profit-taking and the “mining capitulation” phenomenon are believed to be among the factors contributing to these post-halving crashes. Despite these cyclical corrections, Bitcoin has consistently demonstrated its resilience and ability to recover from significant withdrawals.

As MicroStrategy founder and chairman Michael Saylor said,

“If you’re going to invest in Bitcoin, a short time horizon is four years, a medium time horizon is ten years. The real time horizon is forever.”

As the fourth Bitcoin halving approaches, with the price recently reclaiming $71,000, investors and enthusiasts are eagerly anticipating the potential implications.

While history suggests that a post-halving correction could be on the horizon next year, the circumstances today are different from any of the past events that have affected Bitcoin as an asset. With clearer regulations, significant institutional investment, and a stronger network than ever, the cryptocurrency community remains hopeful for Bitcoin’s long-term prospects.