Bitcoin volatility in the run-up to the next halving is lower than in the previous two events in 2012 and 2016, according to data from Digital Assets Data. This gradual reduction in volatility has been interpreted by analysts as natural in the face of a greater maturity and knowledge of the market.
The halving is the event that occurs every four years with the bitcoin in which the remuneration of machines working in mining is halved. With this, there is a reduction in the same proportion of the supply of new bitcoin in the market which, maintained demand, tends to provoke a price increase in the cryptocurrency.
And in general, the market begins to react a few months before the event. In the halving of 2012, for example, there was a 2,000% increase in the price of the cryptocurrency, taking into account the six months period before the event and six months later. On the other hand, in the second halving, the reaction was less extreme, with a 100% appreciation taking into account this same time parameter.
Lower volatility in the 2020 halving
In the six-month period leading up to the next halving, the situation is quite different. Bitcoin accumulates from November 2019 to April 2020, a 19.8% drop in dollars. But it is worth remembering that in the middle of the road there was the adjustment of the bitcoin price due to the coronavirus crisis. In this six-month period, the price has already risen 13% compared to November 2019. Anyway, the volatility leading up to bitcoin’s next halving is much lower than on previous occasions.
“Over the years, the market has become more stable due to increased liquidity, varied global participation, regulatory developments and institutional involvement”, said crypto hedge fund manager Joe DiPasquale, CEO of BitBull Capital, in an article published in Forbes.
Over the years, the market has become more stable due to increased liquidity, varied global participation, regulatory developments and institutional involvement.
Independent cryptocurrency analyst David Martin goes along the same line and states that as assets mature, there are more market participants and this becomes more efficient. He compared bitcoin to Amazon, which was once a small tech startup and whose shares were volatile just like the bitcoin. “As the company became more mature, volatility gradually decreased”.
New financial products also contributes to this greater stability, created based on the bitcoin, such as derivatives, increased knowledge of investors, regulatory structure and financial infrastructure. In addition, there is more historical data available to analyze the market and create better investment strategies.