The Great Readjustment: understanding where we are and where we're headed

On November 10th, 2021, Bitcoin reached a high around $69,000. As I type this, the current price is $42,948. But this post isn't about the price. It's about where we are and where we're headed, in terms of the 4 year halving-to-halving cycle.

We're almost halfway to the next Halving.

You probably know what the halving is. Let's talk about the effect the halving has.

Every ten minutes, a miner wins a block reward, and that's a big deal because block rewards are the only way new Bitcoin is created. Right now, the block reward is 6.25 BTC. Thus, every ten minutes, 6.25 BTC is created and awarded to a miner.

In May 2024, the block reward will be cut in half, to 3.125 BTC.

That doesn't sound like a big change unless you're a miner, but add up the block rewards over time and you'll see how much of a difference the halving makes on the supply of newly mined coins hitting the market:

6.25 BTC are mined every ten minutes (roughly). This is the current block reward.

6.25 X 6 = 37.5 BTC are mined every hour.

37.5 X 24 = 900 BTC are mined every day.

900 X 30 = 27,000 BTC are mined every month.

27,000 X 4 = 108,000 BTC are mined every four months. I use four months as a reference point here because it takes around four months for the halving to cause an imbalance of supply and demand, better known as a supply shock.

The Supply Shock Of 2024:

In May 2024, the halving will cut the block reward in half, from 6.25 BTC down to 3.125 BTC. Price is where supply meets demand, and the halving cuts the supply of new coins in half.

By the beginning of fall, 2024, instead of having 108,000 BTC added to the supply since May, only 54,000 will have been added (because The Halving cut the block reward in half).

That decrease is what causes a supply shock. The supply drops, which means there won't be enough supply to meet the demand, which means the price will keep rising until demand drops enough to put supply and demand in balance again.

Here's an easy way to understand a supply shock: Imagine that you have to attend a huge meeting every morning for a week. Luckily, they provide enough coffee for everybody. But one day, there's only half as much coffee. The supply of coffee was cut in half but the demand is still the same, so there's not enough. People are getting pissed.

In the marketplace, price is set by demand. When the supply of BTC being sold goes down, the price keeps going up until there isn't enough demand to buy it at a higher price.

Price is where supply meets demand: how much is being sold and how much are buyers willing to pay.

But we all know it isn't that simple in reality. In 2024, miners will start hoarding coins instead of selling them, because they anticipate higher prices. This will make the supply shock worse because it will drop the supply of coins being sold even lower. And rising prices causes hype, which will drive demand even higher, which will push prices even higher.

But It Ain't 2024 Yet!

A typical halving-to-halving four year cycle looks like this:

The Halving, followed by around 4 months of hoarding, where people hold on to their coins rather than sell them, anticipating higher prices. This is followed by a bull run of around a year and a crash that goes on for a few months, which is followed by a roughly 2 year period of readjustment that lasts until the next halving. I think we're somewhere between the crash and readjustment phase now.

Maybe we'll see a crash, maybe we won't. Institutional money may have disrupted the usual post-bull-run crash, or at least lessened it. Or not. Only time will tell.

It's easy to feel despair as the price of Bitcoin drops, but I view this as an opportunity. I think you should too.

Just as the last 4 year cycle was the last chance to buy at 4 digit prices, this 4 year cycle may be the last chance to buy at 5 digit prices.

This is the time to accumulate. Buy while you can and hold, because 2024 will be here before you know it.

Secure your coins, preferably in a hardware wallet. Make sure your seed phrase is secured for the long haul. Have a plan in place for passing on your coins if you die... just in case.

P.S.:

If declining prices are causing you anguish, walk away for a while. Don't sell, but DO stop checking the price and reading forums and the news if doing so causes you more pain than pleasure. Take care of your mental health.

KEEP CALM
AND
HODL ON

(Sorry for the edit. I wrote this rather quickly & I found a typo)