Bitcoin Halving Effect: Dual Driving of Emotion and Logic

Many people believe that the main impact of "Halving" on Bitcoin is scarcity, which stimulates people's tendency to hoard and speculate. However, the essence of the Halving is the reduction in output. The entire network invests the same cost in computing power for mining, but the output of Bitcoin is halved.

If the total network hash rate is reduced by half, the mining cost of Bitcoin will remain unchanged. However, due to the market's expectation of a rise in Bitcoin prices and the existence of mining machine costs as sunk costs, the hash rate of Bitcoin is likely to exceed the levels before the Halving.

When the computing power of Bitcoin exceeds half of what it was before the Halving, its mining cost or production cost will rise. As more high-cost Bitcoins are mined, its price is pushed to new highs. This explains why the peak of Bitcoin's bull market is often not around the Halving, but more than a year after it.

Therefore, the logic behind the "Halving" driving a bull market is not only emotional factors but also cost factors. Of course, costs do not completely determine prices, especially for cryptocurrencies, where prices falling below costs is not uncommon.

Litecoin Halving and Macroeconomics

There are opinions suggesting that the performance of Litecoin's Halving in 2023 is far from that of 2019, leading to the speculation that this round of Bitcoin Halving may also not perform well. The Litecoin Halving in 2019 occurred in August, while the peak price of the coin was in June, which was indeed influenced by the Halving's effect on market sentiment.

But we cannot ignore an important factor: in June 2019, the Federal Reserve began to cut interest rates. This macroeconomic event coincides remarkably with the rise in Litecoin prices, which is clearly not a coincidence.

Macroeconomics and Cryptocurrency Bull Market

Many cryptocurrency investors often overlook macroeconomic factors, believing that Bitcoin has never had a high correlation with U.S. stocks. However, in fact, Bitcoin may have always been influenced by macroeconomic cycles.

The Bitcoin Halving cycle that we are familiar with:

• The first Halving on November 28, 2012, peaked about 12 months later (November 2013).
• The second Halving on July 9, 2016, peaked approximately 17 months later (December 2017).
• The third Halving on May 12, 2020, reached its peak approximately 18 months later (November 2021).

However, we may have overlooked an important macroeconomic indicator - the growth rate of the M2 money supply in the United States:

• In January 2012, the M2 growth rate reached its peak, about 22 months later (November 2013), Bitcoin reached its peak.
• In October 2016, the M2 growth rate reached its peak, and about 14 months later (in December 2017), Bitcoin reached its peak.
• In February 2021, the M2 growth rate reached its peak, about 9 months later (November 2021), Bitcoin reached its peak.

Interestingly, the bull market peak of Bitcoin also shows an astonishing consistency with the U.S. election cycle:

• Approximately 12 months after the 2012 U.S. election in November (November 2013), Bitcoin reached its peak.
• About 12 months after the US election in November 2016 (December 2017), Bitcoin reached its peak.
• About 12 months after the 2020 US election in November (November 2021), Bitcoin reached its peak.

This high level of consistency suggests that Satoshi Nakamoto likely took into account U.S. policies and economic cycles when designing Bitcoin. The design of Bitcoin, which halves every four years, would have occurred around January after each presidential election (the time when the new president is inaugurated), if not for the early occurrence due to miner competition.

By observing historical data, it can be found that the last three U.S. elections mostly occurred near the peaks or small peaks of the M2 money supply growth rate. As long as the M2 growth rate is greater than zero, it means that the money supply is increasing, and being near the peak indicates that it is in a phase of accelerated monetary easing. This could be aimed at promoting economic prosperity through relatively loose monetary policy during the election period.

The easing of monetary policy will lead to an increase in the liquidity of the US dollar in the market, part of which will inevitably flow into the speculative market.

2025 Bull Market Outlook

In summary, the Bitcoin bull market that occurs every four years is driven not only by the "Halving" but also significantly influenced by macroeconomic factors.

Litecoin performed poorly during the Halving in 2023, primarily due to the impact of the macroeconomic environment, rather than the Halving itself being ineffective. Therefore, we don't need to overly worry about whether there will be a bull market in 2025, nor should we lose confidence in Litecoin because of this.

The positive effects of Bitcoin Halving still exist, and the Federal Reserve will eventually start to cut interest rates, with US dollar liquidity ultimately shifting from tight to loose. Historical data shows that the Federal Reserve maintained high interest rates for about 14 months from 2006 to 2007. Currently, the market's most pessimistic expectation is that rate cuts will begin by the end of next year, while the optimistic expectation is in the second quarter of next year.

Considering the impact of macro factors, the period from the start of interest rate cuts to the peak of M2 growth rate may delay the bull market cycle. Unlike the previous expectation of the end of 2024, the peak of the bull market may be postponed to 2026. It is currently difficult to make an accurate prediction of the specific timing.

Choosing the Right Time to Buy the Dip

To determine the timing for bottom fishing, we need to wait for the publication of this month's Federal Reserve's dot plot. The dot plot may reveal two important turning points: the halt of interest rate hikes and the beginning of rate cuts. These two turning points may trigger a short-term emotional rebound, but the overall outlook remains pessimistic.

It is worth noting that since 1960, the M2 money supply in the United States has experienced negative growth for the first time, indicating tight liquidity of the US dollar. Even though interest rates have just started to be cut, they remain at relatively high levels, and loans from the previous high-interest period will enter a repayment pressure phase, which also carries risks.

Therefore, bottom fishing requires patience. Recently, some small-cap cryptocurrencies have shown active performance, and there may be opportunities in the short term, but in the long run, investing in small-cap coins still requires caution.