Bitcoin Market Analysis: Bitcoin Is Breaking Out

Here It Comes, How High Will It Go

Pundits, talking heads, industry insiders, traders and market-watchers like me have been anticipating  a major rally in Bitcoin for over a year. The reasons are numerous but today center around one event, the next halving.  The next halving of the Bitcoin mining reward occurs this weekend late on Sunday and promises to bring some volatility to markets if not higher prices.

What is the halving? The halving is a regularly scheduled event that occurs roughly every four years. There is a set number of blocks to be created to reach the goal but those blocks are set to trigger every four years so the number isn’t really important. What the halving does is cut the block reward for each block mined. The current block reward is about 12.5 BTC per block for a total of 1,800 new coins created each day. After the halving, the block reward will be only 6.25 BTCs for about 900 new coins per day.

The purpose of the halving is multifaceted but centers around two things; inflation and network health. by halving the reward the network is able to keep inflation on a downward slope and approaching what economists would call “normalized” levels. At today’s rate of production, the BTC inflation rate is 3.64% annually, after the halving that will fall below 3.5% and trend lower over the next few years.

Regarding network health, by halving the number of coins of produced every four years the BTC network will be able to keep producing new coins almost indefinitely. What this all means for traders is there will less BTCs available each day, for miners it means the cost of producing a BTC is theoretically doubled, so the price of existing BTCs should rise to match.

The Technical Outlook

The BTC/USD chart looks really good. Really good. After rallying up to resistance at the March high, BTC/USD consolidated a broke through to set a new high. The consolidation smacks of continuation within a bull trend and points to higher prices over the near term at least. Based on the size of the rally preceding the break through, BTC/USD could rise to $13,000 fairly quickly. The $13,000 is the next major point of resistance, if the coin can break through that level we can start talking seriously about the all-time high and possible new all-time highs.

The risk is that, post halving, the market will sell-off to try to and capture whatever gains are present. That is what happened last summer with LTC so there is a real risk here. The difference is that LTC/USD had already posted a wicked rally so it was time to take profit. BTC is still in the early stages of a rally that could retest the all-time high.