Cointelegraph Markets’ post-halving Bitcoin (BTC) analysis report takes a deep look at the 2020 halving, its effect on the crypto market and miners, and how it compared to the previous halving events.
The three main sections of this report are:
- What’s next for Bitcoin miners?
- BTC correlation with stocks, gold & rising institutional interest
- Tether market cap growth boosts Bitcoin
The Bitcoin halving
Scheduled to take place roughly every four years, the Bitcoin halving is a built-in event that cuts Bitcoin’s block reward by half. The halving that occurred on May 11 is the third of its kind, bringing with it the reduction of Bitcoin’s issuance rate from 12.5 BTC to 6.25 BTC for every new block that is mined roughly every 10 minutes.
In other words, for the next four years, the amount of new Bitcoin entering into existence, or “mined” daily, has been cut in half from roughly 1,800 to 900 BTC per day — the equivalent of $8.9 million at the current market price of $9,900.
The halving is one of Bitcoin’s most notable events, as it plays a major role in the currency’s deflationary nature and has so far served as a gateway to drive mainstream interest in the cryptocurrency.
A notable feature of the most recent halving is that the reduced issuance rate has dropped Bitcoin’s inflation rate to 1.8%, which is below the inflation target of the United States Federal Reserve. This new era of mining also marks a “make-or-break” period for the popular stock-to-flow model, according to its creator.
What’s next for Bitcoin miners?
- The Bitcoin network hash rate has stabilized following a steep drop following the halving.
- Most miners are continuing to hold BTC even after the halving.
- Lower breakeven prices are expected for miners upgrading to new equipment.
- The halving produced noticeable changes in BTC mining pool dynamics
How miners behave in response to the most recent halving can provide valuable insight into the possible directions Bitcoin’s price will take. With the halving complete, investors and institutions are surely keeping a close eye on the Bitcoin mining ecosystem, comprised of miners, mining pools and other key players.
In addition to supporting the network, miners also play a major role in Bitcoin’s market dynamics. Currently, miners represent the majority of Bitcoin’s selling pressure, creating 900 new BTC every single day on average following the 2020 halving.
Although this figure may not seem like a lot when compared to the Bitcoin trading volumes that consistently surpass $10 billion daily, miners are the Bitcoin market’s natural sellers.
The halving’s impact on Bitcoin’s hash rate and mining difficulty
According to Blockchain.com data, the Bitcoin network hash rate showed constant growth following a drop on March 12 caused by the crash in BTC price — an event now referred to as Black Thursday.
The network hash rate peaked at 122.165 exahashes per second on May 8. However, this trend quickly changed following the halving, resulting in an accentuated drop of 25.76% to 90.69 EH/s in 12 days. After bottoming out at 90.29 EH/s on May 26, Bitcoin’s hash rate has been surging and is currently sitting at 113.9 EH/s.
Total Network hash rate (TH/s).Source: Blockchain.com
The drop in the hash rate came as no surprise to many and some industry insiders believe it may even be a bullish sign for Bitcoin. As production costs have doubled, mining simply becomes unsustainable for some operations who may have higher electricity costs or old-generation equipment like the popular Antminer S9.
Marc Fresa, the founder of United States-based Asic.to, a company that specializes in producing firmware for mining machines, previously told Cointelegraph:
“You can expect the hash rate to decrease as profitability for miners across the board are slashed. This result will cause the older generation miners to be unplugged unless they can find a new home with extremely cheap or free power.”
While the drop in hash rate translates into equipment being shut down or re-directed at other networks with similar hashing algorithms like Bitcoin Cash or Bitcoin SV, the gap has also created an opportunity for new operations to enter the fold as new mining equipment will be available in June.
Meanwhile, an analysis of the Bitcoin network difficulty following its latest adjustment on June 4 reveals a key similarity to when BTC/USD traded at lows of $3,100 in December 2018.
On June 4, the difficulty adjusted down by 9.3%. That followed a downward shift two weeks previously of 6%. If the next adjustment is also negative — it is currently forecast at -5% — it will be only the third time ever that three back-to-back negative adjustments have occurred.
Network difficulty. Source: Blockchain.com
How miners behaved before, during and after the halving
Data from on-chain analytics provider CryptoQuant shows that before the halving, miners refrained from sending Bitcoin to exchanges, which was an important factor in Bitcoin’s price surge prior to the halving. This trend changed slightly during the price dip on May 10.
Miners’ Position Index (MPI). Source: CryptoQuant
A Miners’ Position Index reading above 2.0 suggests miners sell their BTC after mining, while a negative value shows they avoid selling as much as possible in favor of accumulation.
The current MPI shows that miners are still holding on to their BTC following the halving despite the rise in Bitcoin’s price. This shows that miners are not eager to sell at current prices following an increase in production costs.
After the halving, exchange inflow data shows that some accentuated drops in Bitcoin’s price coincided with an increase in the number of newly mined BTC being sent to exchanges. This shows that miners still have an important impact on the price despite their selling potential being cut in half.
All Bitcoin exchange inflows. Source: CryptoQuant
Mining equipment and profitability
New Bitcoin mining equipment is expected to be available this month. Bitmain’s S19 ASIC series was made available for presale in February, and it is expected to be shipped out in June.
The Antminer S19 Pro has a 110 terahash-per-second hash rate with 29.5 joules per terahash, while the standard S19 generates 95 TH/s at 34.5 J/TH. The S19 Pro and S19 cost $2,633 and $1,964, respectively.
Competing ASIC manufacturer MicroBT has recently revealed its M30 series, which will be available in June as well. The ASIC miner will also have two versions: the M30s++ with a hash rate of 112 TH/s at a power efficiency of 31 J/TH, and the M30s+ with 100TH/s with 34 J/TH of efficiency. The price tag for the M30s++ is $1,980 and $1,780 for the M30s+.
Electricity prices for miners in China range from $0.03 to $0.05 per kilowatt-hour, whereas various locations in the U.S. can reach $0.06 per kWh and higher.
This means that — on paper — miners with the new Antminer S19 Pro equipment need Bitcoin to stay within the $2,500-to-$4,900 price range at $0.03–$0.06 per kWh, whereas miners with the standard S19 need the price to stay within the $2,900-to-$5,500 price range for an electricity cost of $0.03–$0.06 per kWh.
As for the MicroBT M30 series, the break-even price is $2,500 to $5,00 for the M30s++ at $0.03–$0.06 per kWh; and the M30s+ break-even price is within the $3,000-to-$5,500 price range at $0.03–$0.06 per kWh.
The Bitcoin halving and mining pools
Chinese mining pools make up the majority of the Bitcoin network hash rate — a factor that concerns some experts. According to Cambridge University’s Centre for Alternative Finance, China currently accounts for nearly 65% of hash power.
Network hash rate historical distribution. Source: BTC.com
Noticeably, the OKEx pool has gone from less than 1% of the network hash rate to 5.66% at the time of writing. F2Pool, the largest mining pool on the network, has seen a somewhat modest increase from 16.16% to 18.08%.
BTC correlation with stocks, gold & rising institutional interest
- Bitcoin only correlated with stocks on smaller time frames.
- The relationship between major markets and Bitcoin shifts before and after each halving, suggesting a decoupling from stocks in 2020.
- Grayscale GBTC and CME BTC futures volumes show institutions are deeply interested.
- Options markets pricing show halving uncertainties are no longer a risk.
Prior to the halving, there was a great deal of discussion and concern about the correlation between Bitcoin and traditional markets. While the discussion has melted to nothing more than background noise, the correlation between the two remains.
What investors should note is that virtually all markets have started trading in tandem since central banks began liquidity injections and the coronavirus pandemic took center stage in March.
Simply implying that stocks and Bitcoin have been behaving similarly based on a few months of strong correlation does not mean the potential “digital gold” theory has become a bust. Bitcoin’s $175-billion market capitalization pales in comparison to gold’s $9-trillion market cap, leading to excessive volatility.
Nonetheless, professional investors have been flocking to Bitcoin, and growing CME futures open interest is key evidence.
30-day Bitcoin USD correlation Vs. S&P 500. Source: TradingView
Although one can argue Bitcoin’s 30-day correlation with the S&P 500 has been close to 0.80 since early 2020, it is not significantly representative based on a more extended timeframe. A similar movement happened in late 2017, as both the stock and cryptocurrency markets soared.
Bitcoin’s price swings have been notoriously disconnected from movements in other markets. But from time to time, the prices move in the same direction across the board for multiple asset classes.
Bitcoin USD (blue) vs. S&P 500. Source: TradingView
March was a particularly rough month for Bitcoin, but the S&P 500 also showed weakness. Investors panicked as soon as lockdown announcements were made across many major U.S. cities.
For example, the U.S. Federal Reserve’s recent expansionary movement was part of a coordinated global effort to cut interest rates and purchase over $6 trillion worth of assets by central banks.
Oftentimes, the result of such policies is a contingent of investors seeking hard assets to protect from “monetary inflation,” as legendary investor Paul Tudor Jones wrote in his investment letter.
There is no indication so far that the halving had an impact on Bitcoin’s correlation with traditional assets. A decoupling should be expected as soon as investors’ attention is drawn away from central banks’ expansionist measures.
30-day Bitcoin USD correlation vs. gold - Source: TradingView
As shown above, there’s no clear pattern on a longer time frame on the 30-day correlation between gold and Bitcoin. This completely disproves the “digital gold” theory, and it’s also an excellent sign that Bitcoin is far from mature.
The digital asset is working exactly as designed: a commodity in its own league, uncorrelated to traditional financial assets.
Bitcoin and market indexes amid halvings
2012 Halving: Market indexes vs. BTC returns. Source: Coinmetrics.io
One month before the 2020 halving, Bitcoin’s correlation with the S&P 500 and Nasdaq was around 37.8%. This one-month correlation shifted after each halving with both market indexes.
When looking at the correlations between Bitcoin’s price and the S&P 500, one can see that in 2012, it was slightly positive (at 10%) before the halving and shifted negatively to -17% after the halving. In 2016, again, it was slightly negative at -7.9% then flipped considerably positively to 43.4% afterward.
Similar outcomes were observed when investigating the one-month correlations between Bitcoin’s price and the Nasdaq. In 2012, it was non-existent (0.6%) before the halving and at -4.2% afterward. In 2016, it was slightly negative at -8.7% before the halving and then positive at 35.5% after the halving.
As seen from the cumulative returns before and after each halving, Bitcoin surged in 2012, while showing a modest loss in 2016 when considering the three-month timeframe after the event.
If the previous trends continue, investors could expect a negative correlation moving forward with major market indexes in the next month. However, the U.S. Federal Reserve’s quantitative easing injections have been leading stock markets to recover from the March crash in the same fashion as Bitcoin. This uptrend contradicts the inverse relationship between both assets seen after each halving in previous years.
2016 Halving: Market indexes vs. BTC returns. Source: Coinmetrics.io
The relationship between Bitcoin and gold after halvings
In the last three months before the 2020 halving, Bitcoin had a 20% correlation with gold while showing a very small relationship when only considering the last month before the halving (-5.5%).
Bitcoin showed a very high correlation with gold three months prior to the 2012 and 2016 halvings at 81.9% and 61.2%, respectively. The same positive correlation is present one month before the halving in both cases.
As explained above, the correlation between Bitcoin and gold shifts dramatically after the halving, resulting in a negative relationship. In 2012, the one-month correlation after the halving between Bitcoin and gold was -44.9%, while it was -67.7% in 2016.
In 2012 and 2016, gold’s price decreased after each Bitcoin halving event, while Bitcoin showed a contrasting behavior in each year.
If the previous cycles continue, investors could expect a shift in the trend, meaning Bitcoin’s correlation with gold could turn negative in the next few months.
Institutional interest picking up
Bitcoin has also seen increased interest from institutional investors. Open interest at the Chicago Mercantile Exchange BTC futures crossed the $500-million mark right after the halving. This is an all-time high, albeit the daily traded volume remains some 50% below mid-February levels.
CME Bitcoin Futures Total Open Interest. Source: Skew
Relevant investors’ entry into CME Bitcoin markets became evident after hedge fund investor Paul Tudor Jones revealed his recently acquired stake. Furthermore, on May 8, 3iQ Corp announced the completion of a $48-million offering of its Bitcoin Fund, which recently began trading on the Toronto Stock Exchange.
Another staggering figure was Grayscale Investments’ capital inflow to its GBTC security, an exchange-traded fund whose single asset is Bitcoin. Grayscale’s crypto funds brought in over $500 million in Q1 alone, 90% exclusively from institutional players.
Further development occurred in May as Renaissance Technologies’ Medallion Fund, a hedge fund with $10 billion worth of assets under management, received the U.S. Securities and Exchange Commission’s approval to trade CME Bitcoin futures.
CME Bitcoin options open interest. Source: Skew
Bitcoin options markets at CME, a derivative contract with lackluster volumes, have also started to gain traction. Over the span of 14 days, its open interest skyrocketed by 1,200%, jumping to $174 million.
Additionally, as halving uncertainties became less of a risk, institutional investors began mounting bullish positions, as 90% of recent CME open interest comes from call options.
Tether market cap growth boosts Bitcoin
- A positive relationship between the issuing of Tether (USDT) and Bitcoin’s price presents a positive outlook for the short and medium-term.
- Bitcoin and crypto-related social media volume continue to influence volume leading into each halving.
Stablecoin market growth points to positive future Bitcoin gains
USDT market cap vs. Bitcoin (Sept. 2, 2019–May 18, 2020). Source: Coinmetrics.io
Between Feb. 10 and May 18, Tether’s treasury consistently minted USDT, leading to the development of a positive correlation (23%) between Bitcoin returns and Tether’s market cap growth.
The last minting period (Sept. 2, 2019–Dec. 27, 2019) shows a positive correlation (17%), while the last non-minting period (Dec. 28, 2019–Feb. 9, 2020) indicates a negative correlation (-9.6%) between those variables.
The shifts in correlations between minting and non-minting periods go in the same line as previous studies that show when Tether issues new coins, there is a positive effect on Bitcoin’s price.
Newer research contradicts previous findings for this theory, however. When analyzing shorter timeframes and employing a regression model, we find some significant results between the two variables:
- In the first minting period, USDT’s market cap growth suggests a predictive power on Bitcoin’s returns. When USDT’s market cap grew by 1%, Bitcoin price would grow by 0.314% the next day — a statistically significant result at the 10% level.
- There was not a significant relationship in the non-minting period and in the more recent minting period.
- Since Sept. 2, 2019, incorporating minting and non-minting periods, there is a significant relationship at the 1% level between both variables. When USDT’s market cap grows by 1%, Bitcoin’s price gains 0.59% the same day.
As the global market cap of stablecoins continues to grow over $10.7 billion, investors can expect the continuity of this relationship after the halving, thus reinforcing the positive outlook for Bitcoin’s price.
Stablecoin market capitalization. Source: Stable Coin Index
Social media metrics reflect investors’ confidence amid halving
The number of Bitcoin-related tweets reached 82,000 on the day of the halving, which is a record value since February 2018.
Thirty days before the halving, Bitcoin’s price correlation with the number of tweets was at 90%, while the same analysis before 2016’s halving was also positive at 17.5%.
In 2016, the positive relationship seen before the halving shifted to a negative correlation after the halving as social media volume naturally decreases after an event that only occurs every four years.
As a benchmark, since 2014, the correlation between Bitcoin’s price and the number of tweets is 40%, reinforcing this year’s high social enthusiasm about Bitcoin before the halving.
As previously reported by Cointelegraph, social media activity influences trading volume and had a very small influence on Bitcoin’s price throughout 2019.
The month before the halving, correlation between the number of tweets mentioning Bitcoin and BTC’s trading volume was 74.3%, reinforcing the strong relationship between social media activity and the asset’s trading volume.
Bitcoin’s volatility seems to go hand-in-hand with periods of higher interest in social media volume around Bitcoin, suggesting short-term opportunities to take advantage of that surge.
The 2020 halving has already had a noticeable impact on Bitcoin much like the halvings before it, both of which preceded considerable appreciation in BTC’s price.
The hash rate, mining difficulty and other on-chain metrics have been in flux and adapting to the new economic reality of reduced mining block rewards.
Meanwhile, Bitcoin continues to follow certain patterns such as a noticeable correlation in value to traditional markets and geopolitical events. However, previous halvings have shown that the relationship between major markets and Bitcoin shifts before and after each halving, suggesting the asset could decouple from stocks in 2020.
Additionally, the recent positive relationship between Tether’s USDT issuance and Bitcoin’s price continues to present a pleasant outlook for the short and medium-term.
This seems likely, considering the continuous growth in USDT market capitalization that is rapidly approaching $10 billion after supplanting Ripple (XRP) as the third-largest cryptocurrency earlier this month.
The latest Bitcoin halving has also seen record media attention compared to 2016, as well as unprecedented institutional interest and volumes. Notably, Paul Tudor Jones revealed right around the time of the halving that his fund had made a small 1%–2% size allocation to Bitcoin.
Growing institutional interest and new funds entering the Bitcoin market are a strong bullish sign for the cryptocurrency, and 2020 is shaping up to be a pivotal year for Bitcoin — which is on its way to becoming a new standalone asset class.
The views and opinions expressed here are solely those of the authors and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.