Bitcoin halving does not directly impact price, study confirms

Recently, due to the news of Bitcoin and Litecoin halving, most people have speculated that the upcoming halving will result in a decrease in supply, an increase in demand, and consequently, a rise in prices. However, contrary to expectations, recent studies have shown that this event has not affected the prices of the coins.

Finding Reasons and Impacts

People in the market always seek to find cause and effect relationships, yet in the cryptocurrency market, many are drawn to its randomness and volatility. Nevertheless, investors still try to uncover some clues, leading some media outlets to speculate on potential price movements, influencing market trends.

However, some logically based phenomena may indeed reveal cause and effect relationships. For example, many cryptocurrency enthusiasts believe that a halving of block rewards will lead to price increases, which is reasonable. If miners receive fewer coins, holders expect the value to rise, reducing selling pressure. Therefore, a decrease in supply should theoretically drive prices up.

Litecoin recently brought this news to the market, soaring 480% from its low of $22 in December 2018 to a new high of $130 in July this year, becoming one of the few assets that outperformed Bitcoin in a bull market.

But is this news accurate? The data suggests that we may be mistaken.

Research on the Impact of Halving on Prices

According to a report from Cryptoslate, Nico Cordeiro and Ava Masucci from the Seattle-based startup Strix Leviathan, who specialize in studying the engineering and operation of trading algorithms in the cryptocurrency market, conducted research challenging the significant impact of halving on coin prices.

The researchers analyzed 32 halving events of 24 cryptocurrencies and compared them with the overall market. They evaluated each currency for six months before and after each halving, comparing them with cryptocurrencies that did not experience halving events during the same period.

"Price changes before and after halving are random, indicating that potential factors are not caused by changes in supply and demand dynamics."

Furthermore, they compared currencies that halved production as well. In theory, price changes should be more significant during the halving period. However, the researchers found that the currencies did not experience major fluctuations before and after halving.

The researchers stated:

We found that the volatility during the halving period of assets is the same as during non-halving periods at a 99% confidence level. In other words, we found no evidence that halving events lead to abnormal price movements, and we continue to search for reasons.

Their conclusion is that there is no evidence that cryptocurrency assets outperform the market in the months before and after a reduction in miner rewards.

Surviving in Market Noise

Ultimately, the fluctuations in the cryptocurrency market can be attributed to human behavior, with Cordeiro and Masucci succinctly stating, "The financial world is full of thousands of logical and theoretical constructs, but these constructs are not necessarily true in practice."

Those investing in Bitcoin and other cryptocurrencies need to be wary of such biases. Many market movements supposedly triggered by major news events may simply be random and unfounded.

In a noisy world, it is important to remain skeptical. However, if one believes that Bitcoin (and other cryptocurrencies) will continue to rise, the most reasonable strategy may be to average into the market over a long period in terms of dollar cost or value cost, ignore the noise, and capitalize on long-term trends.

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