Bitcoin follows a coin issuance schedule where mining rewards halve every ~4 years (210,000 blocks, 10-min block-intervals). The first halving in Nov ’12 marked the end of the first cycle, followed by July ’16 and last in May ’20. We have seen monstrous rallies due to supply shocks caused by these events as they hit blow-off tops before going through a consolidation phase.
We’re in the 4th cycle now and it looks like we have peaked out early.
This event cuts Bitcoin’s inflation rate and the rate at which new coins enter circulation until it reaches the proposed max supply of 21 million around the year 2140. By then, miners will be rewarded with transaction processing fees which network users will pay for.
The significance of the issuance rate on the circulating supply diminishes with an increasing % of bitcoin’s finite supply issued. That is why we see log-returns by the end of each cycle dropping each time.
At the rate of a 0.9 drop in log returns each cycle, log returns could = 2.3 at least by the end of this cycle which is about a 10x gain from the start of this year and an implied Bitcoin price of about $300k by the end of 2024.
If this cycle continues to run before seasonality, it could possibly reach bottoms shortly before the end of 2022.
Not financial advice. All views are solely my own.
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