With bitcoin’s third halving happening in May of 2020, we’ve created a guide for crypto traders that explains some of the most common bitcoin halving chart indicators. Use them in your own research as you navigate crypto markets during this exciting halvening season and beyond.
This article will start out with some background on bitcoin and how the halvings work. Then we delve into specific chart indicators that provide data for use in making price predictions and trade decisions.
Note: This article is intended to be for educational use only and is not financial advice.
What is bitcoin?
Bitcoin is a system of payments that enables people to send money directly to each other without a third party. It uses a decentralized network of computers worldwide that anyone can hook up to and which maintains the system of money in a secure fashion. Bitcoin miners run the core software on their own computers (nodes) and help to verify transactions and solve equations. If they are able to solve the puzzle, then they are rewarded and that verified block of transactions is added to the immutable Bitcoin Blockchain. Learn more about bitcoin by reading the bitcoin whitepaper.
The bitcoin halving explained
On the Bitcoin Blockchain, each block contains transactions from global bitcoin users that need to be verified as non-double-spent so they can be go through and be logged on the blockchain ledger. Miners use computer programs and hardware to compete in solving a cryptographic puzzle to ‘win’ the block, thus receiving a reward in newly minted bitcoin.
But at every 210,000 blocks, the Bitcoin Network experiences a scheduled “bitcoin halving”. What this means is that the amount of bitcoin reward to a miner for each block is halved, or cut in half.
Since the first block was mined in 2009, the halves have been initiated about every four years, with the third halving due May 12th of 2020.
How the mining rewards change with each halvening
When bitcoin had its first mined block (aka the “Genesis Block”) in January of 2009, the reward was 50 bitcoin per block. About four years later and after the first 210,000 blocks, the reward was cut to 25. Again, four years after that it was cut to 12.5. This year, the 3rd such halving will reduce the reward for miners per block to 6.5 bitcoin, currently valued at about $60,000.
To track how many days are left before the next halving, the website TheHalvening.com keeps a real time feed going that people can check at any time.
Is it bitcoin halvening or bitcoin halving?
It’s both! Halvening and halving may be used interchangeably.
What is the purpose of these halvings?
The halvings are part of Satoshi Nakamoto’s dream of a currency that was free from government and central bank manipulation. As the Bitcoin Network grows stronger and demand increases over time, the price of bitcoin rises.
But unlike all other commodities, when BTC price rises, you won’t see a corresponding increase in the supply of bitcoin to meet the demand. Instead, it is carefully scheduled to decrease over time as the network gains value.
The “Why” of bitcoin halvings:
- Over time, new coins will become more scarce, which lowers inflation.
- Because the annual supply of bitcoin that is introduced into the market through block rewards is reduced, demand rises. More blocks added essentially means more bundles of transactions that people worldwide are making by buying, selling and trading BTC. As time goes, and more and more people begin to use bitcoin, the supply of bitcoin will not increase to meet demand. Instead, it decreases to preserve and increase scarcity.
- Satoshi Nakamoto planned for the volatility of bitcoin, which is a digital asset secured by the work (in computation costs and electricity) by miners. Nakamoto knew there would be greed and FOMO and created a currency and a way to store value that was immune to infinite money printing. The rampant inflation and loss of value to people’s money caused by central bank manipulation would not touch bitcoin.
- Nakamoto created this system of supply control that would increase bitcoin scarcity as the Bitcoin Network grew in strength.
- It’s important to note that you don’t need an entire bitcoin to buy, sell or trade it. In fact, the phrase, “stacking sats” refers to building up Satoshis (or sats), which are small increments of bitcoin. Each sat is worth 0.00000001 bitcoin. The scarcity of bitcoin is evident in the hard coded, permanent, 21 million cap on bitcoin supply. But each bitcoin can be broken down into smaller increments.
Bitcoin miners find their block rewards halved every 210,000 blocks. To help compensate for this, they receive gradually increasing commission fees for verifying transactions on the Bitcoin Network.
Bitcoin halvings historical impact
And the question everybody wants to know is….What happens to bitcoin price when a halving occurs?
Let’s look at what’s happened in past halvening events.
After the first 210,000 blocks were mined, we had the first bitcoin halving in 2012. At that time, the mining block reward reduced by half from 50 to 25 bitcoin per block.
Price action data for one month and one year later show the historical trends of BTC price after the first few halvings:
From the above data, you can get a feel for how BTC price levels off a bit as miners adjust to the newly halved block rewards. Then we’ve seen a steep climb over the next 12 months.
Bitcoin halvings will continue every 210,000 blocks until all 21 million bitcoin have been mined. At that point, no more new bitcoin will be minted going forward.
As the Network grows and transactions per day rise, earnings for verifying transactions (not block rewards) are expected to increase enough to keep node operators profitable. So the Network continues to strengthen over time as the mining rewards phase out.
Now it is time to look at some bitcoin halving chart indicators to try and make sense of what will happen!
Prevalent bitcoin halving charts to watch
The charts and indicators below will give you a great feel for the circumstances surrounding this year’s bitcoin halving.
This is a great indicator if you want to compare 2020’s bitcoin spot trading volume leading up to this halving (indicated in black) with that of the time around the last halving in 2016 (in red).
Bitcoin mining hashrate
The technical definition of hashrate is the estimated number of terahashes/second performed by the Bitcoin Network in the last 24 hours.
The key point about hashrate is that it’s a measure of the processing power of bitcoin’s decentralized network and the speed of solving the cryptographic puzzles to win block rewards. The higher the hashrate, the more cryptographic puzzles are being solved by miners.
The hash rate has historically risen along with BTC price in halvings of the past. In March of 2020, directly after traditional markets crashed, bitcoin’s hash rate (and BTC price) also took a dive. But it came back in March to reach a new all time high and has continued its climb.
After each halving, some miners may stop mining as the cost to run the mining hardware may become too expensive for them to make any profit. As the number of miners decrease, the hashing difficulty for solving the mining puzzles also decreases. This ensures that new miners are incentivized to come on board to begin mining. Because now they have more chances of winning a block with a) less difficulty, and; b) less competing miners.
YouTube influencer, The RightTrader, posted this all time BTC price chart demonstrating the steady accumulation phase leading up to each halving, followed by a steep rise in price.
BTC all time price chart by The RightTrader
A 3-month BTC price chart at HedgeTrade shows bitcoin’s steady growth leading up to the halving despite the market plunge in March 2020:
This BTC TradingView chart below posted by Jay_shree shows the 60-day BTC/USD price while highlighting higher high and lower low trends. It shows impulsive and corrective price stages, or waves. Her view is that essentially bitcoin could experience a new all time high – but it could also fall quickly:
Ichimoku (trend indicator)
Ichimoku charts enable traders to evaluate an asset by looking at trendlines and the “clouds” they form in relation to one another. Trend lines may cross over producing specific signals in relation to the clouds. Overall, the Ichimoku system gives traders a quick look at the trends by using different moving averages. Ichimoku cloud charts help to determine the probability of potential trade trends and opportunities.
On April 19th of 2020, IAmSatoshi shared his Ichimoku chart on TradingView. It indicated that Bitcoin may soon cross above the Ichimoku Cloud for the first time in five weeks as we near the halvening event. He referred to this trend indicator as a “once-a-quarter” buy (and hold) signal.
Stock to Flow
Stock to flow (S2F) measures the relationship between how much of a commodity is in circulation relative to how much of the commodity is manufactured and added to the supply in a given year. In 2020, it’s become one of the most popular bitcoin halving chart indicators.
So when you think of gold or silver, there’s so much in the circulating supply right now, and there is more being mined. The amount that is mined depends on demand. But once more of the precious metals is produced to meet demand, the price eventually drops in the face of a bigger supply.
With bitcoin, Satoshi’s clever supply and demand model works very differently. In fact, as Bitcoin’s Network grows in strength, and demand and prices rise, the supply is actually decreased by the halving events. So instead of an expected price drop after a commodity increases its supply to meet demand, bitcoin instead becomes more scarce.
Plan B’s BTC Stock to Flow Model
Plan B has been the voice of the bitcoin stock to flow model since March of 2019. In their Medium series on the topic, they remind us that in 2017, the circulating supply of bitcoin (stock) was 25x larger than the annual production of new bitcoin minted (flow). The bitcoin stock to flow then was less than half that of gold. But by 2020, because of the halving system, bitcoin should pass gold in terms of stock to flow.
At each halving, the S2F for bitcoin doubles, and will do so again at the next one.
Supply for bitcoin does not increase with increased demand or price. In fact, it decreases at regular intervals until the supply growth stops completely at block 367,500 (in about 120 years) and never begins again.
Moving averages are popular indicators in technical analysis. They are used to smooth out price action by using averages over a certain period of time, such as a 15-day moving average, or a 200-day moving average.
Yassine Elmandjra posted his 1-year moving average bitcoin halving chart on May 1st, 2020. It is signaling a break out resulting in a new all time high.
Fear and Greed Index
The fear and greed index is a measure of fear and greed on a regular basis, such as daily or monthly. When fear is high in markets, prices go low and when greed is high, prices go high. In terms of bitcoin, when fear is at its highest, it may be a buy indicator.
The fear and greed index are usually charted on a scale of 1 to 100 using a combination of volatility, social media postings, trading volume, Google search volume, and other data. The two main takeaways when analyzing the fear and greed index are:
1 – Extreme fear may signal that investors are excessively worried. This may represent a buying opportunity. If the index shows red, that is excessive fear.
2 – Extreme greed (when in the green) signals that investors are too greedy, prices are likely high, and a correction (price drop) may be coming.
Reasons why this halving is different
All halvings involve the same splitting of the miner rewards, only each time that reward is smaller by half. But that’s not the only difference between now and the other havlings in 2012 and 2016. All of these factors may contribute to your assessment of these bitcoin chart indicators. Here’s a short list of how this halving’s bitcoin is a beast of its own making:
Rise of stablecoins
Moving into stablecoins is viewed as putting money into cryptomarkets. With bitcoin as the dominant crypto, it’s a pretty strong sign that stablecoin exchange volume has posted multiple all time highs in 2020.
ATH trading volumes
As mentioned with stablecoins, ATH’s are happening left and right in the crypto market. This includes transaction volume on exchanges like Binance, as well as for trading volume for bitcoin, Ethereum and other crypto assets.
Bitcoin’s supporting infrastructure
At the first halving in 2012, there were only a few exchanges for trading bitcoin. Now there are more than 500. And it’s not just exchanges that have been growing and proliferating since around 2016. The supporting infrastructure includes bitcoin wallets, swap exchanges, decentralized exchanges (DEXes), futures markets, lending and leverage outlets, OTC exchanges, and countless business ideas and startups that connect to bitcoin to improve their own business model.
Bicoin in 2012 was a fringe asset with only a few highly creative cypherpunk types getting involved. Thanks to their involvement, today we have bitcoin: a 10-year-old cryptocurrency that has outperformed every other asset over the decade.
As a result, institutional interest has flowed into bitcoin over the last few years. So now, it’s not uncommon to read about bitcoin in Forbes and even the Wall Street Journal (one of the last holdouts on bitcoin reporting).
Even the current POTUS and his administration have been warning about the “dangers” of bitcoin while fiat currencies face mass dilution around them. For bitcoiners, this is the purest sign of bitcoin’s strength, and as Tales from the Crypt’s Marty Bent suggests, government pushback is bitcoin’s “best advertisement”.
Bitcoin and everyone else who is alive today is new to global pandemics the likes of COVID-19 as well as an unprecedented market crash. The global economic shutdown could have yet to e determined long term effects, which must be factored in with these bitcoin halving chart signals before making investment determinations.
We hope this review of bitcoin halving chart indicators has been a helpful resource to you. It’s a very exciting time as the halving draws ever closer. It’s our goal here at the HedgeTrade Blog to equip traders with as much knowledge as possible. That way they can make solid decisions for their investment portfolios and so enhance their profitability.
Let us know on Twitter if you’d like us to include another chart that you think adds a lot of value for traders reading this.
What’s your bitcoin prediction?
Do you have a prediction for bitcoin after the halving? What will happen one year from the halvening event? If you are a pro trader and want to earn crypto by sharing your knowledge about this, go to app.hedgetrade.com to sign up, stake some tokens and post your Blueprint prediction to be sold on the HedgeTrade marketplace. If you’re right, you will earn HEDG tokens from those that bought your prediction and get your stake back.
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