Making cents (sense!) of post-halving pricing…

The transaction that first gave Bitcoin any sort of monetary value happened in October 2009 when a Finnish computer science student Martti Malmi (‘Sirius’) sold 5,050 coins for $5.02, meaning each Bitcoin was worth $0.0009 each. In today’s terms, if he had held on to his coins, he’d be (circa) NZ$555,500,000 richer. Today, we all know “someone who knows someone” who invested around that time and has become a multimillionaire; and we’re kicking ourselves for not doing the exact same thing…

With the fourth Bitcoin halving firmly in our rearview mirror and some very recent all time highs for Bitcoin, new investors (or even existing ones wanting to build or increase their crypto portfolio) might be asking if they’ve waited too long to invest…

On the other hand, those who have HODLd - or ‘held on for dear life’ - for a while might be fretting about the lack of an immediate, dramatic change in price over the past weekend.

An immediate ascent is always unlikely…

In the past, halvings have been followed by periods of increased demand and price surges due to the dynamics of supply-demand - but this is never immediate and market dynamics, sentiment and regulatory factors all influence Bitcoin's price trajectory, making a straight-line ‘ascent’ unlikely.

While analysts anticipate an upward trend (which has been the case historically post halving), the reality is nuanced and these events are often followed by periods of consolidation and correction - including rallies, reactions and a lot of volatility on (hopefully) the way up. 

TLDR: If  you were expecting prices to skyrocket overnight, you should have been reading my blogs sooner to get those expectations in check!

The danger in letting disappointment drive decision-making 

Some analysts predicted that the halving would trigger an immediate price slump that would lead to widespread ‘panic selling’; but this hasn’t yet happened... Prices have currently remained buoyant (increasing by 9%); and as a result, investor morale remained buoyant. There was no immediate sell-off…

But things often change very quickly in crypto and this is when underwhelm can lead to panic as pricing drops. In particular, ‘newbies’ who have recently invested in Bitcoin ETFs might not be used to the asset class’s volatility and when pullbacks occur, they could decide that they prefer a move back to more traditional (and more predictable) vehicles. These ‘knee-jerk’ reactions could still lead to a ‘sell-off’, despite looking at only a ‘moment in time’ being a dangerous way of making investment decisions. 

TLDR: We might not have seen an immediate slump, but this doesn’t mean we shouldn’t be pre-prepared for one with a sound investment strategy to boot. 

Taking a broader view on volatility… 

The recent halving of Bitcoin block rewards is foundational to Bitcoin’s well-known four-year cycle. This cycle has been historically closely linked to price, with the cycle progressing through ‘Bull’ (rising prices); ‘Bear’ (falling prices); ‘Accumulation’ (a levelling out of prices) and ‘Expansion’ (steady growth). Understanding this cycle is foundational to an ability to take a much broader view of volatility. 

In terms of ‘what’s next’, we can expect a lot of analysis around any retracements (minor pullbacks or changes in the direction of a financial instrument in terms of price). These retracements are often temporary in nature and do not necessarily indicate a shift in the larger trend.

TLDR: In analysing your next investment move, it’s important to understand what point we are at in the asset cycle. 

Playing the ‘long game’

Seasoned investors all tell us that playing the ‘long game’ is often far wiser than making knee-jerk decisions. As the saying goes, time in the market beats timing the market. Given the crypto market’s volatility, strategies you can employ include:

> Dollar cost averaging (DCA): Regularly invest fixed amounts regardless of market conditions to average out costs and reduce risk.

> The hold-on-for-dear-life (HODL) strategy: Hold onto assets long-term despite market fluctuations, focusing on fundamentals rather than short-term movements.

> Diversification: Spread investments across different assets (such as types of coins) to minimise risk from volatile market swings.

Too many investors don’t ‘Keep calm and invest on’, getting caught up in ‘timing the market’ in terms of entry or running aground when the market becomes more volatile. An ability to confidently navigate volatility is key to avoiding being a ‘Sirius’ and will help you have the confidence to invest, HODL and sell successfully. 

Disclaimer: Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.