Lifting the Offer: Bitcoin trading analysis for the week of May 18th, 2015

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Released every Monday, Lifting the Offer provides key market data, macro analysis and price outlooks to prepare bitcoin traders for the week ahead. Check out the full archive here.


Tradeblock-05.18.2015

Source: tradeblock.com

Bitcoin by the Numbers

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Best Bits from Last Week

 

The Macro View: Planning for the Next Bitcoin Halving

One of Bitcoin’s most fascinating attributes is the limited bitcoin supply. In order to distribute the finite amount of bitcoins that will ever be released (21 million) over a longer time frame, approximately every four years the mining reward (supply of new bitcoin) is cut in half. Using current average block solving time (10 minutes per block) and holding computational power constant, the amount of new bitcoins that will be given for each successfully mined block will go from 25 XBT to 12.5 XBT on July 28, 2016.

It’s important to understand that the reward decrease to 12.5 XBT will not occur on a specific date, but rather on a specific block number. Block number 420,000 to be exact, which is only 63,015 blocks away (as of this writing) for those of you scoring at home.

The improved velocity in mining technology has actually pushed up the next halving event date. Using data from TradeBlock, the average block confirmation time per quarter since 2010 has been approximately nine minutes or 10% faster than the generally adopted metric of 10 minutes per bitcoin block confirmation.

As a trader, the idea that supply will be cut in half upon reaching a specific block number serves as an immense macro event that may or may not be considered by the overall trading community. Many traders were not as involved in the industry when the initial halving event occurred on November 28, 2012, cutting rewards from 50 XBT to the current 25 XBT.

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Pricing in the Next Halving Event

To get a better sense of industry sentiment, we conducted a survey among 30 high-profile bitcoin traders on the topic of the halving. We asked when they would “price in” the effect of halving into their bitcoin valuation.

Given this is publicly available information, it’s not surprising that 37% of respondents said they are already pricing in the halving event. However, there is only a slim margin between this crowd and the third who are waiting until next year to consider adding the event to their pricing models. This bifurcation shows the different trading mentalities being taken across the Bitcoin ecosystem. Essentially, a little over a third of those surveyed are willing to pay a premium at current spot levels to get ahead of the halving event.

 

Bitcoin Price Outlook: Neutral

Aside from last Wednesday’s over 3% slide, the market has been relatively flat. We can consider this sudden drop in price an isolated event as the trade which triggered the decline in price occurred within a single 10-minute trading window.

These types of trades will continue to have a volatile effect on the bitcoin price, particularly as the trading volume continues to melt away. Using TradeBlock's XBX Historical Volume, the highest day for volume traded over the past week was approximately 20% lower than the previous week. Aside from that mid-week trade, the market traded tightly with prices bouncing between $234 - $239 and the majority of trading activity falling between $235 - $238.

Looking at the week ahead, volume figures may continue to be razor thin, especially given the upcoming Memorial Day holiday in the US. Thus, it's hard to argue for an increase in the price of bitcoin. Miners will continue to liquidate holdings going into the holiday weekend and traders should also be mindful of potential end of month expenses to be paid by mining operations.

We don’t anticipate much in the way of headlines to help boost the bitcoin price as holiday weekends generally tend to be quiet. However, traders should have dry powder on hand as there may be some decent buying opportunities during the anticipated low volume days this weekend.

 

This Week in Bitcoin’s (Limited) History

2013: CNBC: After Government Raid, Jittery Future for Bitcoin

2014: RT: US Regulators Develop Bitcoin Rulebook

 

Comments? Feedback? We’d love to hear it! Click here to email the author.

 

Bobby Cho is the Director of the Institutional Client Group at itBit. Previously, Bobby was Vice President of Trading at SecondMarket specializing in trading bitcoin and illiquid asset-backed securities.

 

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