Bitcoin Drops 5% On Halving: Buy The Dip Or Hit The Exit?

by: Orange Peel Investments


The great Bitcoin mining halving of 2016 has taken place.

It came and went with a whimper.

What's next for the crypto currency?

By Parke Shall

The great Bitcoin halving of 2016 has come and gone with a whimper. Bitcoin is priced today as it was yesterday, despite the last few months' hype over its halving. As you can see from the below chart, the event wasn't even the most volume charged or volatile event for BTC over the last couple months.

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As we predicted, the results of miners being able to mine less Bitcoin per dollar had already been priced in and the "official halving" made very little difference to the price of Bitcoin. In fact, the currency dropped 5% at first. What does this halving mean? As Quartz reported,

The network saw its mining reward -- the amount of bitcoin miners receive for confirming transaction -- get cut in half earlier today (July 9), around 12:48 EST. The event occurs after every 210,000 blocks are mined, or confirmed, by the system.

It's a significant moment for the bitcoin community. As we explained, the event was programmed into the system by its pseudonymous creator Satoshi Nakamoto. For miners, it results in a big drop in revenue -- for one block mined, a miner would make around $16,000. Now, it's $8,000.

Just like equities, Bitcoin's market is a forward-looking market. Many people saw this halving coming many months ago, and it is what we anticipate fueled the currencies surge of late from the $300 and $400 level to current levels near $700. If you zoom out on a chart, you can see the recent run up, a move that we think was partly related to Brexit and panic buying, but also pricing in the upcoming halving at the same time.

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In other words, while others were simply attributing that to Chinese buying, we were thinking that it was coming in preparation of the having that took place yesterday. This is why we think the price of the currency dropped 5% as soon as the having took place.

However, Bitcoin did well to steady itself after and is currently trading near $650, where it was prior to the halving.

Those looking for immediate gratification from Bitcoin purchases related to the halving are going to be disappointed.

Having said that, we are long Bitcoin and are still actively buying through several mediums in order to stay diversified. We think that as the currency continues to evolve and continues to become more mainstream and more accessible to retail, that the price will continue to move up. The limited supply of Bitcoin and its decentralization give it all of the hallmarks of a financial asset that could appreciate significantly in short order in the event of uncertainty.

If a catalyst like this doesn't occur, we still believe Bitcoin has nowhere to go but up, as more and more classes of potential Bitcoin owners, users, and investors are exposed to the currency.

While we know many people are upset that the price of Bitcoin did not double overnight with the having, we believe that continuing to stay long is for the long term the sensible strategy. We also believe that volatility in the currency's price will continue for a while, but that this will eventually give way to a measured secular rise in Bitcoin's value versus traditional currencies.

Disclosure: I am/we are long BITCOIN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.