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13 May 2021

Why The Bitcoin Price Will Break $60,000, Continue Going Parabolic In 2021

Why The Bitcoin Price Will Break $60,000, Continue Going Parabolic In 2021

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Many are familiar with the correlation between bitcoin’s supply issuance halving and the price action, but digging deeper can provide context to where bitcoin is in the current cycle, and what the future price action may hold.

The previous two bitcoin bull runs paint quite an interesting picture about the interplay of the protocol’s inelastic supply issuance schedule and the price action of the monetary asset.

Bitcoin miners can be thought of as the most bullish market participants, as large capital expenditure must be made before any bitcoin is even acquired, followed by the operational expenses that come with the energy needed to mine.

Directly following a halving event, new supply issuance of bitcoin is cut by 50%, which puts downwards pressure on inefficient mining operations, which have to shut down as their revenue is cut by approximately 50% overnight.

Not only does the halving event decrease the quantity of new bitcoin supply issued per day immediately, but in the process, remaining mining operations see their competitors ousted simultaneously.

These dynamics, coupled with increasing development, improved exchange and wallet infrastructure and a fresh wave of new adopters, create a massive disequilibrium between available bitcoin supply versus market demand, which serves as rocket fuel for the price of bitcoin. .

During the parabolic leg of a bull market following the halving, the price action and adoption of bitcoin is reflexive.

It begins to sink in for many that Bitcoin has not “died” as they may have previously believed, and increased legitimacy, market liquidity, market infrastructure and the newfound support by respected investors increases demand, despite supply remaining completely inelastic.

With the price of bitcoin increasing exponentially, mining profitability skyrockets.

Because of the difficulty adjustment that is built into the protocol, the miners continue to fight for the same amount of bitcoin, despite increasing competition and difficulty.

This dynamic means that with all else being equal, profit margins across the mining industry are diminished, thus increasing potential sell pressure as miners have capital expenditure and operating expenses denominated in dollars.

With the exponential increase in users and adopters (stackers/HODLers), an increasing amount of buy side pressure is exerted in the market in the early stages of the bull run.

However, as bitcoin increases in value by an order of magnitude (or more) in a very short amount of time, newfound demand dries up, and the sell pressure from miners and long-term holders can no longer be met with increasing demand to sustain such a high price.

However, following the parabolic rise that comes with the first 70,000 blocks following a halving, will bitcoin see a protracted approximate 80% drawdown and bear market similar to past cycles?

Market participants, specifically those with an extremely large amount of bitcoin, now have the option to never sell any of their holdings, while living off of their stack.

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