Markets Geek

This toggle bar can feature specific pinned articles perhaps

Bitcoin Halving – A Price Contradiction in Times of Crisis


Posted: Thursday, September 10th, 2020

Estimated Reading Time: 2 minutes

Share this article on

Bitcoin halving sits at the core of many investors’ decision to own Bitcoin. The process, clearly scheduled from Bitcoin’s inception, constantly adds value to Bitcoin.

Judging by the laid plans, one Bitcoin should worth hundreds of thousands of dollars in the not-so-distant future. For instance, if Bitcoin halving works and the price follows the predicted values, one Bitcoin should worth a minimum of $18,000 by the end of 2020. Or, a minimum of $40,000 by April 2021. And so on.

But there is a problem with the Bitcoin halving principle – Bitcoin acts just like any other regular financial market’s asset. As we already are in September 2020, the chances are slim for Bitcoin halving to reach the levels mentioned before.

Bitcoin Halving

S&P500/Bitcoin Correlation

Bitcoin hodlers (i.e., investors willing to hold the cryptocurrency for a long time) point to the recent correlations between Bitcoin and other financial assets. The S&P500 and Bitcoin correlation is one of them.

Until 2020, the narrative said that Bitcoin appeared as an asset to protect the portfolio during recessions. In tough times, when the stock market collapses, Bitcoin should be there as an alternative digital investment and protect the portfolio’s value.

So what did Bitcoin do when the stock market collapsed in March? It tanked together with it. Moreover, the price action that followed during the pandemic suggests that Bitcoin’s correlation with the stock market is alive and kicking.

But it makes no sense when Bitcoin, in the first place, was designed as an uncorrelated asset. In dire times, when the market behaves in exceptional ways, investors would want Bitcoin to hold to its path. Or, to offer diversification benefits.

No Diversification Benefits As Bitcoin Halving Failed So Far

Yes, Bitcoin remains in its growth range as defined by the previous halvings. But it barely holds at the lower edge of the range.

When risk-on drives the market higher, no one wants to diversify. This is precisely why Bitcoin or other alternative investments take only a few percentages of a portfolio’s allocation.

However, in a risk-off scenario, one would want Bitcoin to offer the diversification benefits an alternative investment is supposed to offer. So far, Bitcoin failed to do so in 2020, bringing up another important question – will it keep the halving projected path?

One thing is for sure. If Bitcoin and S&P500 direct correlation persist, it is the worst thing hodlers want to see moving forward.

The more it becomes evident that Bitcoin does not offer diversification benefits from the main stock market, the more investors will dump it from their portfolios. Hence, Bitcoin halving price projections make no sense if the current correlations persist.

More articles on Alternative Investments