We know that the block reward halving tends to make bitcoin prices go up, but why?

Ah yes, the bitcoin halving, it's all the rage right now in crypto land, and for good reason.

It only happens once every 4 years and we tend to the price of bitcoin go up significantly in the most following the event.

So, why exactly does the new block rewards being cut in half make the price go up?

I'm glad you asked!

It's supply and demand 101 really.

For some context, think about what might happen to the price of oil if OPEC were to suddenly announce they were cutting the new supply in half...

What do you think would happen to the price of oil?

It would go up, right.

Well, that is precisely how it works with bitcoin.

There is an equilibrium price where the demand from buyers meets the supply from sellers, and much of the new supply is included in that as miners tend to be some of the biggest sellers of bitcoin.

At that equilibrium point the price of bitcoin stays relatively flat.

If that price going into the halving was roughly $8k... that means that if the new supply is cut in half, and the demand were to stay constant, one might expect prices to double to $16k.

That is basically the crux of the whole economics of it, decreasing new supply in the face of constant or increasing demand and you get a price that rises.

Ok, but why does it go up well past that roughly double mentioned above?

That's where you and me come in.

Speculators and traders.

Once the price starts going up, people start jumping in because they don't want to miss out on the gains.

As they jump in, the price gets fueled higher and higher, thus attracting more and more investors/traders/speculators.

It all kinds of feeds on itself until eventually it gets so high that there is not enough new money entering to keep up with the profit taking and it topples over on itself.

And that toppling over marks the beginning of the roughly 18 months or so of bear market action that follows.

However, as the halving starts creeping up again, the entire cycle starts over again.

That's why bitcoin has traded in these somewhat predictable cycles over the past 12 years.

The latest bull market period has likely just started now, signaled by the halving event which happened yesterday.

And if previous patterns plat out again, and they probably will, we will see bitcoin go on another parabolic run that takes prices well beyond the previous all time highs and likely peaks out sometime between 12 and 17 months from yesterday.

Hopefully that helped some understand it a little bit better.

Stay informed my friends.

Image Source:

https://crypto-iq.com/the-myth-of-cryptocurrency-halving-events-a-deeper-analysis/

-Doc