Rethinking Bitcoin: Evolving Dynamics and Uncertainties Ahead of the Fourth Halving
Why the Fourth Halving Charts a Unique Course: DIFFERENT from the Second and Third Halvings
Introduction
I shared my forecast with columnist Jessica Grant of The Stock Dork on May 24, 2022, in an article titled 'Where is Bitcoin Headed Next.'
Reassessing Bitcoin's Halving Events
My forecast was originally based on the historical significance of Bitcoin's halving events, which consistently resulted in substantial price gains in the years following.
However, as I reassess the situation, I take into account the current SEC scrutiny on the crypto industry, the emergence of FTX and Sam Bankman-Fried, and the SEC lawsuits against major players like Binance and Coinbase. These factors lead me to believe that the dynamics surrounding the upcoming fourth halving in April-May 2024 (estimated) will differ significantly from the past three halvings. Consequently, I am revising my bullish stance on the next Bitcoin halving, tentatively scheduled for May 25, 2024, at 09:20:59 PM UTC.
Previous Halving Events
To provide context, let's examine the previous halving events. The first halving occurred on November 28, 2012. As it was the inaugural halving, there was no prior data to base our analysis on. Consequently, it does not serve as a strong precedent for analysis due to the lack of a solid historical base. The SECOND HALVING took place on July 9, 2016, coinciding with the founding of the cryptocurrency exchange, BINANCE, in July 2017, exactly one year after the halving – a time when Bitcoin tends to hit new all-time highs (ATHs). This timing was noteworthy because historical data from the last three halvings has shown that Bitcoin's price typically surged to multiple ATHs precisely in the year following the halving, which would have been around July 2017—the birth of BINANCE.
Market Manipulation and Stablecoins
During this period, key exchanges like Binance, alongside major platforms such as Coinbase, Kraken, Huobi, Gemini, and various smaller exchanges, in conjunction with stablecoins like Tether (Initial release on October 6, 2014), USDC (Launched on May 15, 2018, issued by Circle Internet Financial, LLC (“Circle”), raising US$110 million in venture capital), and DAI (Initial release December 18, 2017), played a significant role in potential price manipulation through inflated and fake trading volumes. Unlike Wall Street, where hundreds and thousands of market makers set prices based on supply and demand, the CRYPTOCURRENCY MARKET IS CHARACTERIZED BY A LIMITED NUMBER OF MAJOR PLAYERS. In the traditional stock market, if there's more demand for a stock than there is supply, market makers increase the price, and vice versa. However, in the crypto market, where regulations have yet to establish clear standards, it resembles the wild west. THE LIMITED NUMBER OF MAJOR PLAYERS MAKES PRICE MANIPULATION, FAKE VOLUMES, AND MARKET MANIPULATIONS MUCH EASIER. The second halving propelled Bitcoin to an ATH on December 18, 2017, reaching $19,498.63.
Subsequently, the release of Binance stablecoin BUSD and Binance Coin (BNB) in July 2017 further contributed to manipulative activities surrounding the two largest stablecoins, Tether and USDC, with artificially inflated trading volumes and the creation of "funny money" out of thin air. These developments set the stage for the third halving.
Third Halving and Market Turbulence
The THIRD HALVING took place on May 11, 2020, a mere two months after the U.S. implemented COVID-19 lockdowns. During this turbulent period, the Federal Reserve injected unprecedented amounts of money into the economy. Notably, The New York Times reported a surge in retail investing as individuals sought opportunities amid the pandemic. With traditional venues like casinos closed and professional sports halted, platforms like Robinhood offered commission-free stock trading. This era also witnessed the rise of 'meme stocks,' driven by nostalgia and support for underdog companies, epitomized by GameStop. Despite its bleak financial outlook, GameStop became a symbol of populist sentiment.
Rise of FTX and Tether
Around the same time, FTX, founded in May 2019, just one year prior to the THIRD HALVING, managed to secure an impressive $1.9 billion from 80 investors within a span of two years. Under the leadership of Sam Bankman-Fried, the platform occasionally leveraged up to 100x. According to Forbes Digital Assets, he single-handedly acquired $36 billion worth of Tether stablecoins, significantly contributing to Tether's market capitalization reaching an all-time high of $78.35 billion by December 2021.
Tether is used in more than 50 percent of global bitcoin trading, with FTX being one of its largest customers. This milestone occurred approximately 1 year and 9 months after the COVID lockdown in America and 1.5 years after the third halving. It serves as a poignant reminder that Bitcoin tends to attain new all-time highs approximately 1 year after each halving. The third and most recent halving propelled Bitcoin to an ATH, with the digital currency reaching $68,990.90 around 9:15 a.m. EST on November 10, 2021, as per Forbes, which is coincidentally a span of 1.5 years after the third halving matching that of Tether’s ATH.
Approaching the Fourth Halving
As we approach the FOURTH HALVING, tentatively estimated for April-May 2024, it's crucial to recognize that the circumstances MAY NO LONGER ALIGN WITH THE PAST. Why? You might ask? We lack a new player of BINANCE's magnitude entering the scene as it did with the second halving, and the absence of someone like Sam Bankman-Fried, often referred to as the “King of Crypto,” as he did with the third halving, with their combined billions for manipulating markets through excessive leverages and fake volumes to artificially inflate Bitcoin. Additionally, some of the largest cryptocurrency players, including Coinbase, the largest U.S.-based crypto exchange, and the second-largest stablecoin, USDC, are currently embroiled in legal disputes with the SEC, leading to increased scrutiny of their actions. There's also speculation that Ethereum, the second-largest cryptocurrency behind bitcoin in terms of market cap, may face similar regulatory actions. These developments represent a significant departure from historical patterns.
NSA and Bitcoin's Origins
Moreover, it's worth delving into intriguing aspects of Bitcoin, including the intriguing question of whether the government, specifically the NSA, had any role in its inception. Economist Martin Armstrong has raised an intriguing hypothesis that Bitcoin could potentially serve as a government-created instrument for monitoring and taxing all transactions. He supports this theory by highlighting the absence of a profit motive for Bitcoin's anonymous creator.
What's the NSA's role in this? Did they have a hand in creating Bitcoin? According to a former NSA analyst quoted by Cointelegraph, "I would say it this way: They absolutely have the capability." You can watch a concise 1.5-minute video explanation on this topic here (NSA Bitcoin). The roots of SHA-256, the cryptographic hash function underpinning Bitcoin's security, can be traced back to U.S. intelligence services, specifically the National Security Agency, or NSA for short. Engineers working within the agency made significant investments in developing this algorithm, and it was initially published in 2001.
U.S. Government and Bitcoin
Furthermore, according to Forbes Digital Assets, “U.S. Government Owns Way More Bitcoin Than Any Other Country–So Why Aren't They Selling It?” Primarily through asset seizures, which account for a substantial portion of the global government-held Bitcoin supply. The potential connection between Bitcoin and the U.S. government's initiatives, particularly the rollout of the DIGITAL DOLLAR, is worth considering. The Federal Reserve's introduction of the 'FedNow Service' in July 2023, while not directly related to a digital currency, has prompted speculation about its potential role in future CBDC infrastructure. This has raised concerns about privacy and control regarding a digital dollar.
According to CoinDesk, “Federal Reserve’s ‘FedNow’ Launch Triggers Fresh Speculation Over Digital Dollar While FedNow is currently not tied to any initiative for a digital U.S. dollar or the crypto space in general, experts warn that the system might end up as a precursor to the infrastructure for a central bank digital currency. But experts say the new system could lay the groundwork for the infrastructure needed for a potential central bank digital currency (CBDC) in the U.S.”
As economist Armstrong suggested, could the government 'float a balloon to see if it's accepted,' testing the waters, so to speak, to see if its approach is accepted? And if this approach has proven successful, is it time to halt Bitcoin's preparations for the CBDC Digital Dollar?
Traditional Finance Giants
Now, let's shift our focus to the titans of traditional finance. BlackRock, managing nearly $9 trillion in investments, Fidelity with $4.5 trillion, Invesco with $1.5 trillion, and Franklin Templeton holding $1.4 trillion in assets, collectively amassing a staggering $16.4 trillion under management. This combined sum is about half of the total value of all shares in S&P 500 companies, valued at approximately $38 trillion.
Bitcoin ETFs
These financial giants have all ventured into the race to secure a spot Bitcoin ETF application, nearly all of which have faced delays, with no approvals in sight. Since its official launch on January 3, 2009, spanning approximately 14 years and 9 months, Bitcoin has yet to see the approval of a spot Bitcoin ETF. Notably, Grayscale was among the earliest companies to file an application to convert its Grayscale Bitcoin Trust (GBTC.PK) into an ETF in 2021. Despite the SEC approving Bitcoin futures ETFs, which track contracts to buy or sell Bitcoin at predetermined prices, these products do not directly own Bitcoin and instead rely on rolling futures contracts, which can create pricing disparities.
The Debate Over Spot Bitcoin ETFs
So why do these traditional giants enter the race nearly 15 years post the birth of bitcoin? It depends on who you ask. Within the crypto space tends to be the bullish ones, as they should because their life depends on it, most are dying for the approval of a spot Bitcoin ETF as they believe the massive trillions will help propel bitcoin and as likely, the entire crypto space to break an ATH. The bears are the skeptics based on facts. According to CNBC, the SEC has said it can't approve a spot bitcoin ETF because there isn't a regulated crypto market of sufficient size to prevent manipulation, and the SEC concerns about Bitcoin itself not being traded on regulated exchanges and therefore being vulnerable to unknown risks for investors.
Still, that doesn’t answer why these traditional financial giants are lined up with applications? According to Business Insider, “Institutional investors aren't allowed to buy cryptocurrencies at the moment – but SEC approval of BlackRock's filing would change all that, offering Wall Street a cheap and regulated route into the token.” If that is true, then the hopes of having spot Bitcoin ETF applications approval could still be a long way, possibly after exchanges are regulated, after clear rules and regulations for the crypto space have been outlined, fake volumes, manipulations, frauds, and scams are somewhat under control or at best eliminated.
Conclusion
In light of these complex factors, I AM REVISING MY STANCE TO APPROACH PREDICTIONS OF A SPECIFIC PRICE TRAJECTORY OR PATTERN FOR THE FOURTH HALVING WITH GREATER CAUTION. While historical data from the second and third halvings suggests significant post-halving price increases, the evolving market landscape and the emergence of new variables present challenges in making precise forecasts, casting a somewhat uncertain outlook on the future of Bitcoin based on the current information.
Therefore, I advise investors and enthusiasts to approach the upcoming halving with vigilance. Conducting thorough research, diversifying investments, and staying informed about market developments, regulatory changes, and global events are essential in this dynamic environment. It is crucial to be prepared for both potential gains and losses when investing in Bitcoin or any other cryptocurrency.
Revised on 10/11/2023, incorporating the article from Investing.com on “Ethereum's 2014 ICO, which raises concerns regarding potential regulatory violations.”
Hey Jenny, loved your article! It's fascinating how the fourth Bitcoin halving is breaking away from the previous ones.
Could the government really put the brakes on Bitcoin in favor of the CBDC Digital Dollar?