Bitcoin Halving: A Dual Drive of Emotion and Logic

Many people believe that the main effect of "Halving" on Bitcoin is scarcity, which stimulates hoarding and speculative behavior. However, the essence of Halving is the reduction in output: the same computing power costs are invested across the network, but the amount of Bitcoin produced is halved.

If the global hash rate is halved, the cost of Bitcoin mining will remain unchanged. However, due to market expectations and sunk cost factors, the actual hash rate is likely to exceed the level before the halving. This means that as long as the hash rate exceeds half of the original level, the production cost of Bitcoin will rise. With more high-cost Bitcoins being produced, their price is also pushed to higher levels. This explains why the peaks of Bitcoin bull markets are often not near the halving but rather more than a year after the halving.

Therefore, the logic that "Halving" drives the bull market is not just based on emotional factors, but also includes cost factors. Of course, costs do not fully determine prices, especially in the case of cryptocurrencies, where prices falling below costs is not uncommon.

Litecoin Halving and Macroeconomics

There are opinions that the performance of Litecoin Halving in 2023 is not as good as in 2019, thus speculating that this round of Bitcoin Halving may not perform well either. The Litecoin Halving in 2019 occurred in August, while the coin price peaked in June, which indeed reflects the impact of Halving on market sentiment. However, it is worth noting that June 2019 coincided with the beginning of interest rate cuts by the Federal Reserve, a macro factor that cannot be ignored.

Macroeconomics and Cryptocurrency Bull Market

Despite many cryptocurrency investors being skeptical about macroeconomic factors and believing that Bitcoin has a low correlation with traditional financial markets, in reality, Bitcoin may have always been influenced by macroeconomic cycles.

Observing the past few rounds of Bitcoin Halving and bull market cycles, we can find some interesting patterns:

1. Bitcoin Halving and Price Peaks:

   • The first Halving (November 28, 2012) reached its peak about 12 months later.
   • Approximately 17 months after the second Halving (July 9, 2016) reached its peak
   • Approximately 18 months after the third Halving (May 12, 2020) reached its peak

2. The growth rate of the M2 money supply in the United States and the price peaks of Bitcoin:

   • The peak M2 growth rate in January 2012, about 22 months later Bitcoin reached its high point.
   • The peak M2 growth rate in October 2016, about 14 months later Bitcoin reached its peak
   • In February 2021, the M2 growth rate peaked, and about 9 months later, Bitcoin reached its high.

3. The U.S. Election and Bitcoin Price Peaks:

   • About 12 months after the November 2012 election, Bitcoin reached its peak.
   • About 12 months after the November 2016 election, Bitcoin reached its peak.
   • About 12 months after the November 2020 election, Bitcoin reached its peak.

These patterns indicate that the price movement of Bitcoin may be closely related to U.S. policies and economic cycles. During U.S. elections, there is often a relatively loose monetary policy, which may lead to increased market liquidity and some funds flowing into speculative markets.

2025 Bull Market Outlook

Although the Litecoin Halving in 2023 performed poorly, it does not mean that the outlook for the Bitcoin bull market in 2025 is bleak. The positive effects of the Bitcoin Halving still exist, and the Federal Reserve will eventually enter a rate-cutting cycle, with US dollar liquidity shifting from tightening to easing.

Currently, the Federal Reserve has maintained high interest rates for about 14 months. The market expects that interest rate cuts may begin as early as the second quarter of next year, and at the latest, may not happen until the end of next year. Affected by macroeconomic factors, the new bull market cycle may be delayed and could even extend to 2026.

Bottom Fishing Opportunity

To accurately grasp the timing for bottom fishing, one must wait for the Federal Reserve's latest dot plot. The dot plot may reveal two key turning points: the halt of interest rate hikes and the beginning of rate cuts. These turning points could trigger a short-term market sentiment rebound, but the overall outlook remains pessimistic.

It is noteworthy that since 1960, the M2 money supply in the United States has experienced negative growth for the first time, leading to tight liquidity of the dollar. Even if interest rate cuts begin, it will initially remain in a relatively high-interest phase, and the repayment pressure from earlier high-interest loans will also bring risks.

Therefore, bottom fishing requires patience. In the short term, certain small-cap coins may present opportunities, but from a long-term perspective, investing in small-cap coins still requires caution.