First Mover: Geek-Fest Turns Relevant as Bitcoin Passes $21K, $22K, $23K

As bitcoin prices push to new all-time highs, it's worth recalling May's "halving," which highlighted the cryptocurrency's potential inflation resistance.

AccessTimeIconDec 17, 2020 at 2:10 p.m. UTC
Updated Sep 14, 2021 at 10:44 a.m. UTC

Bitcoin (BTC) was higher for a sixth straight day, carrying through after surging 9.9% Wednesday to surpass $20,000 for the first time in the cryptocurrency's 11-year history. 

"We are expecting this inertia to generate ripple effects going into the end of the year as momentum continues to skew bitcoin to the upside," Lennard Neo, head of research for the digital-asset products issuer Stack Funds, wrote Thursday in a report.  

Here's a brief recap of CoinDesk's coverage of the rally past $20K:

In traditional markets, European stocks gained on coronavirus vaccine hopes and the British pound climbed as officials predicted a Brexit deal soon. U.S. stock futures pointed to a higher open as congressional leaders hashed out a $900 billion stimulus bill. The dollar slumped after Wednesday's Federal Reserve meeting disappointed some investors who were expecting a more dovish outcome. Gold strengthened 0.7% to $1,878 an ounce. 

For those keeping track, bitcoin is now up 217% in 2020, roughly 14 times this year's gains in the Standard & Poor's 500 Index of U.S. stocks. Gold is up 24%.  

Cumulative year-to-date price returns for bitcoin, versus gold and the Standard & Poor's 500 Index of U.S. stocks.
Cumulative year-to-date price returns for bitcoin, versus gold and the Standard & Poor's 500 Index of U.S. stocks.

Market moves

(Editor's note: This is the fourth installment of First Mover's recap of how the bitcoin market evolved over the course of 2020 and what it means for the future. Today we cover the month of May, when the Bitcoin blockchain underwent its once-every-four-years "halving." Outlandishly high price predictions for the cryptocurrency failed to materialize, but the network's programmed reduction in the pace of new bitcoin issuance set up a stark contrast with Federal Reserve money printing, measured in the trillions of dollars.) 

In early 2020, before the devastating economic toll of the coronavirus became clear to investors, the main narrative in the bitcoin market was the upcoming "halving" – an arcane, once-every-four years occurrence that takes place on the underlying blockchain network. 

Since the Bitcoin blockchain was invented only 11 years ago, it would just be the third halving in history. It was very technical, but the whole process was hard-coded into the network's underlying programming, and the basics went something like this: At a certain point in May, the pace of new issuance of bitcoin by the blockchain would get cut in half, to about 6.25 bitcoins every 10 minutes or so from the 12.5-bitcoin average clip that had prevailed over the recent four-year period.

Generally speaking, few surprises were expected, with all the details stipulated in advance. But that was sort of the point: Under the cryptocurrency's design, things were supposed to run like clockwork, giving humans little leeway to intervene based on subjectivity or politics.

These were no ordinary times. In the prior months, the deep economic toll of the coronavirus had sent global markets reeling, dragging down bitcoin prices from a high of about $10,500 in February to as low as $3,850 by mid-March. Then, as the Federal Reserve and other global authorities started pumping trillions of dollars into the financial system, asset prices shot back up, and by April bitcoin traded as high as $9,485. 

Cryptocurrency market analysts talked up the halving as a potential catalyst for a price rally; one German bank went so far as to predict that bitcoin could shoot to $90,000 or higher. 

“Look for prices to attempt the $10,000 level on speculative buzz leading into the halving,” Jehan Chu, co-founder and managing partner at Hong Kong-based blockchain investment and trading firm Kenetic Capital, told CoinDesk in late April. 

CoinDesk even built its own "Bitcoin Block Reward Halving Countdown" to mark the estimated time and date of the big event. With everything going on in the world, the halving took on the feel of a geek-fest for crypto insiders. The suspense came mainly from watching the price charts: Would the halving drive bitcoin prices to the moon?

CoinDesk's bitcoin halving countdown clock, as of April 28.
CoinDesk's bitcoin halving countdown clock, as of April 28.

As it turned out, the halving came on May 11 and proved anticlimactic by pretty much all accounts. Industry executives on a CoinDesk halving-countdown talk show, held via Zoom, had to pass the time with technical discussions of the future potential of bitcoin mining computers and how much the network’s speed might accelerate over the next four years.  

When the blockchain network finally reached block number 630,000, the moment everyone was waiting for, someone posted a snippet of code on Twitter showing the halving had indeed happened. There were some huzzahs all around, and everyone dropped out of the Zoom room.

“This is more of a holiday for the crypto community than anything else,” Mati Greenspan, of the foreign-exchange and cryptocurrency research firm Quantum Economics, wrote in a note to clients. 

Over the course of the month, prices never climbed much above $9,000. 

“We are seeing buy-the-rumor, sell-the-fact at work,” Russell Shor, a senior market specialist at the foreign-exchange and cryptocurrency-trading firm FXCM, said in emailed comments.

Underneath the deflating buzz, though, was an epiphany: The blockchain network was working exactly as designed, and not even the worst economic crisis since the Great Depression had thrown it off course. 

What's more, the reduction in the pace of bitcoin issuance provided a sharp contrast with the monetary policies pursued by the Federal Reserve and other major central banks. 

The human central bankers, to their credit, were doing all they could to keep the world's financial system from collapsing. But the dynamic meant that bitcoin, with its hard-coded and ever-diminishing supply curve, might serve investors as a bulwark against debasement of the U.S. dollar and other currencies. 

To underscore the point, the Chinese bitcoin-mining pool f2pool embedded a message into the blockchain record for data block No. 629,999: “NYTimes 09/Apr/2020 With $2.3T Injection, Fed’s Plan Far Exceeds 2008 Rescue.” It was a headline for a news article from the prior month, detailing a massive money-printing episode by the U.S. central bank. 

Coin Metrics, a cryptocurrency analysis firm, revisited the theme in a report earlier this week, illustrating how the blockchain's quadrennial halvings might provide confidence to investors looking for an asset that isn't subject to human discretion and qualitative judgments.

"Halvings will keep occurring every four years until the supply cap of 21 million bitcoin has been reached," the analysts wrote. "This means we can project well into the future, and have clarity about what Bitcoin’s inflation rate will look like one, five or 10 years from now." 

That might be easier, even, than trying to predict what Federal Reserve Chair Jerome Powell and his colleagues might do at their next meeting in January.  

- Bradley Keoun

The Bitcoin blockchain's halving in May led to a steep drop-off in the cryptocurrency's annual inflation rate.
The Bitcoin blockchain's halving in May led to a steep drop-off in the cryptocurrency's annual inflation rate.

Bitcoin Watch

Bitcoin's hourly chart shows high volume rejection above $23,700.
Bitcoin's hourly chart shows high volume rejection above $23,700.

Bitcoin surged to new record highs above $23,000 earlier on Thursday, before quickly falling back by over $1,500.

The cryptocurrency dropped from the all-time high of $23,770 to $22,185 in the roughly 30 minutes to 09:45 coordinated universal time (UTC), representing a 6.7% drop, according to the CoinDesk 20. 

The sudden pullback was backed by the highest hourly sell volume since Nov. 26 and suggests uptrend fatigue. The cryptocurrency could consolidate in the broad range of $20,000 to $24,000 in the short term.  The derivatives market and on-chain activity suggest scope for a continuation of the rally.

While the average level of funding rate on bitcoin perpetual futures across major exchanges has risen from 0.005% to 0.036%, it remains well below the high of 0.093% seen before the Nov. 24 price drop. Calculated every eight hours, the funding rate reflects the cost of holding long positions. It is positive (or longs pay shorts) when perpetuals trade at a premium to the spot price. As such, a very high funding rate is widely considered a sign of leverage being excessively skewed to the bullish side, or overbought conditions.

In other words, leverage isn’t skewed too bullish, which could mean the cryptocurrency has scope to rally further. 

Further, there are few signs of large investors looking to book profits, with prices easily rallying to record highs above $23,000. At press time, there were roughly 2,400,000 coins held on exchanges. That’s the lowest since August 2018, according to data source Glassnode, and suggests investors aren’t preparing for a sell-off. 

- Omkar Godbole

What's hot

CME announces plans to launch ether futures in February (CoinDesk

Ruffer Investment confirms massive bitcoin buy of $744M (CoinDesk

Paxos raises $142M Series C funding following PayPal deal, OCC bank charter application (CoinDesk

San Francisco-based cryptocurrency exchange OKCoin now allows users to invest in decentralized finance (DeFi) applications without paying gas fees (CoinDesk)  

Kraken exchange plans to integrate bitcoin's Lightning Network in 2021 (CoinDesk

American Express VC unit invests in FalconX cryptocurrency trading platform (CoinDesk

Austrian cryptocurrency trading platform Bitpanda sets up new tech hub in Poland, allocates €10M (US$12.2M) to fund the center, with goal of creating 300 jobs (CoinDesk

Hedge fund One River, backed by Alan Howard's Brevan Howard Asset Management, emerges as bitcoin buyer with $1B goal, Bloomberg says (CoinDesk)   


The latest on the economy and traditional finance

Federal Reserve keeps interest rates unchanged, adds qualitative guidance on pace of money-printing (CoinDesk

U.S. congressional leaders near agreement to add new round of $1,200 stimulus checks to proposed $900B relief package (Washington Post

Fifty years of tax cuts for rich didn't trickle down, study says (Bloomberg

Switzerland, Vietnam labeled as currency manipulators by U.S. Treasury (Washington Post

Some members of U.S. Treasury advisory group advocate allowing big asset managers to buy government bonds directly from the Federal Reserve Bank of New York, to add trillions of dollars more in liquidity to the market (Reuters

Goldman Sachs analysts see 10-year U.S. Treasury yields rising to 1.5% by mid-2021, from about 0.9% now (Reuters

"Nothing is more reassuring to an investor than the knowledge that central banks, with much deeper pockets, will buy the securities they own," Allianz's Mohamed El-Erian writes in op-ed (FT

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CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.