2 More 4-Year Cycles that Boost Bitcoin’s Halving
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| By Juan Villaverde |
The Bitcoin (BTC, “A”) halving has come and gone. While it produced some volatility, the day itself ended with virtually no change in Bitcoin’s price.
Going into this date, many people asked me what I thought Bitcoin would do on this critical day.
My answer: Nothing.
As my colleagues pointed out previously, very little bullish price action generally comes with the halving itself. It takes a while for the reality of the decreased mining supply to hit against increased demand.
And when that happens, there are actually two other four-year cycles that line up with the halving that can send BTC through the roof.
To understand them, we have to go back in time a bit …
Bitcoin was created in 2008 and launched in 2009. It began publicly trading as an asset in 2010.
However, two other significant events also occurred back in 2008: The U.S. presidential election and the Global Financial Crisis.
Let’s start with the U.S. presidential election. A well-worn axiom of American politics says incumbents seeking reelection are unlikely to win another term if the United State suffers a recession.
So, whoever’s in power during an election year normally spends as much as possible to ensure voters are in a good mood on polling day.
Don’t just take my word for it. A recent study by Goldman Sachs also concludes: “On average, fiscal policy grows more expansive ahead of elections.”
The latest presidential election cycle was somewhat distorted by the COVID pandemic. But the basic pattern was unchanged: increased spending at the federal level to boost the U.S. economy.
We’re seeing the same thing this time around.
Increased government spending stimulates the economy, but it comes at the cost of debasing the currency. And Bitcoin loves nothing more than currency debasement.
How aftershocks of the Global Financial Crisis line up with Bitcoin halvings can be a bit nuanced to explain. But let me give it a go.
In the wake of the Global Financial Crisis, central banks around the world slashed interest rates to 0%. Money became virtually free.
Naturally, just about everyone who owed money tried to refinance their debts at zero percent, or as close to zero as they could get.
The average duration of that debt? About four years.
In other words, every four years the monster debt taken on in 2008 comes up for repayment. But in today’s world, debt doesn’t get paid off. It gets refinanced. In perpetuity.
This “debt refinancing cycle” is a major reason Bitcoin halvings are so bullish.
You see, the mountain of debt is so high, the only way to refinance it is for central banks to print money. And print they do.
The Federal Reserve may still be holding interest rates stable. But other central banks in the European Union and elsewhere have already started to cut.
They do this to ensure that the governments and corporations refinancing their debts every four years can find enough liquidity to do so.
And this increased liquidity is THE thing that makes Bitcoin — and other cryptos — surge.
So, is the year of halving a big deal? Absolutely!
But it’s not JUST about the Bitcoin halving or the reduction in the supply of new Bitcoin.
It’s also about these two big macroeconomic trends — U.S. presidential elections and the debt refinancing cycle — that match up so very nicely with the same four-year pattern.
Whenever multiple profoundly bullish forces converge in a single price-time window … crypto asset prices are in for a wild ride to the stratosphere.
Fortunately, investors like you still have a little time to prepare your portfolios for what is promising to be an impressive second phase of this bull market.
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Best,
Juan Villaverde
