Bitcoin’s Halving in One (Condensed) Lesson

1Crypto’s Red-Letter Day

“Emily, it was the most amazing thing I have ever seen!” my Mom texted me after viewing the solar eclipse from the path of totality yesterday.

eclipse Photo courtesy: Alex Hevesy

Me, being a wiseacre, countered: “Seeing your kids born? Your grandkids?”

Also, this was my experience during the eclipse in Maryland:

Me: (Driving my stone-deaf aunt home from her ENT appointment) You know you can’t look at the sun, right?
Aunt: Oh, I CAN look at the sun?!?
Me: (Shouting) You can NOT look at the sun!

But, hey, are we all present and accounted for?

At the moment, it appears all the angst and augina leading up to the eclipse turned out to be… a nothingburger.

Although…

William Tweet

Moving on…

“Bitcoin has rallied 70% year-to-date, and nearly 160% over the trailing 12 months,” says Paradigm’s chart hound Greg “Gunner” Guenthner.

“Bitcoin now has gained more than 350% off its bear market lows,” he says. “Crypto speculators are now looking toward this month’s main event: the halving.”

Per this event, Gunner says: “It takes a certain amount of processing power to mine Bitcoin. Currently, Bitcoin is mined at a rate of 900 per day. After the halving, that rate will drop to” — you got it — “450 a day.” 

In addition, the incentive crypto miners receive for their efforts will be halved.

Precisely when that rate will be halved is sort of a moving target. According to Paradigm’s crypto expert Chris Campbell, the halving will occur when there are 840,000 blocks on Bitcoin’s blockchain.

[If you’re brand-new to Paradigm — and/or brand-new to crypto — Chris was kind enough to answer my burning crypto questions back in 2017.

He answered my questions so clearly, in fact, that our managing editor Dave Gonigam compiled an entire 5 Min. Forecast (our former name) under the title “Bitcoin in One (Condensed) Lesson.” 

It still holds up, I think. The blockchain explainer alone is worth the price of admission which, in this case, is simply your time.]

Back to Bitcoin’s halving…

“We won’t know the exact day or moment until it happens. Our best guess is sometime between April 18–22,” Gunner says.

“That gives us less than two weeks until the big event. And after the halving takes place, the new supply of Bitcoin will get crunched — while demand is ratcheting higher as the bull run continues…

Bitcoin's Red-Letter Day

“Since this isn’t the first halving,” Gunner says, “we actually have a short track record to review. This is good news for the Bitcoin bulls because the past three halving events have led to a massive run-up in price.

“It doesn't guarantee we’ll see a massive bump later this month in the post-halving crypto landscape,” he adds. “Still, I like our chances for the rally to continue based purely on the fact that Bitcoin has been constructively consolidating for the past month — and it’s now beginning to press toward the top of its range.

“With the halving approaching, you might be worried Bitcoin is barreling toward a sell-the-news event that will result in a nasty pullback — or worse!

“Sure, it’s possible…

“Big, obvious news catalysts can cause a lot of stress if you aren’t prepared,” says Gunner. “As the halving approaches, remember the following…

“Bitcoin is somewhere in the middle of a powerful bull cycle,” Gunner notes. “It has just recently posted new highs after coming out of a bear market. We’re probably not at the end of this secular bull run just yet.

“Next, we need to accept that the faster the rally, the more volatility we will likely encounter. It’s the price we pay for playing the crypto market.

  • “Know your time frame and goals for any trade before you enter your position
  • Smart planning will help you weather any potential storms along the way,” says Gunner.

“And don’t allow a quick reaction to a news event catch you off guard. Sharp moves happen as markets quickly absorb new information. Stay alert and understand that we might see some fake-outs — higher and lower — before Bitcoin settles into its ‘new normal.’

“Finally, buckle up and enjoy the ride!” Gunner encourages. “This monster Bitcoin rally isn’t over yet.”

[NOTE: This week, Paradigm’s early-stage crypto investor James Altucher will share how investors like you can prepare for the 4th Bitcoin halving. Watch this space for more information tomorrow.]

2Market Malaise and Flagging Optimism

Optimism among American business owners has sunk to a 12-year low…

The National Federation of Independent Business is out this morning with its Small Business Optimism Index — a survey that’s over a half-century old. The headline number rings in at 88.5, down 0.9 from the month before. This figure has been mired below its 50-year average for 27 months now.

“Inflation has once again emerged as the top business problem on Main Street and the labor market has only eased slightly,” says NFIB Chief Economist Bill Dunkelberg. Meanwhile, 37% of small-business owners report job openings that they’re unable to fill.

There’s not a whole lot of optimism in equities today: All the major U.S. stock indexes are in the red with the DJIA hit hardest; the Big Board is down 0.30% to 38,765. At the same time, the S&P 500 is down 0.20% to 5,190 while the tech-laden Nasdaq is down just 0.05% to 16,245.

Then there are precious metals… Gold hit another high-water mark today, up almost $12 to $2,362.60, and silver, likewise, is up 0.24% to $27.87. Oil, however, is down almost 1% to $85.62 for a barrel of West Texas crude.

And — don’t say Gunner didn’t warn you (see above) — the crypto market has hit turbulence today. Bitcoin’s down about 4%, just under $69,000, and Ethereum is down 4.75% to $3,500. HODL…

3A Peculiar Divorce (Gold and Miners)

Why are gold miners getting “lost in the sauce,” a reader wonders?

According to a Bloomberg article he forwarded to The 5 Bullets: “The world’s biggest gold miners are at risk of missing out on the metal’s record run after spending billions of dollars to become the obvious home for bullion-focused investors.”

To answer our reader’s question, I turned to Paradigm’s geologist and mining expert Byron King. “Here's the key point,” Byron says, “buried deep in the article…

Miners have seen margins shrink as inflationary pressures persist, with most companies spending more on labor, equipment and processing than expected.

“Gold tracks inflation, at least over the long haul,” says Byron. “But inflation is the measure of rising prices for things, certainly fuel, labor, etc.

“So the question is: Can miners make profits from pricier gold while outpacing the rising costs of energy, labor and other materials?

 “I like to look at gold as a form of solid energy,” Byron continues “Take a rock out of the ground. Crush it, grind it, separate the ore.

“Then soak the ore in acid and dissolve out the gold. Then reconstitute the mix into a semi-refined product. Then treat that product, and eventually pour a bar. Lots of energy there,” he concludes.

“I would add that the fear of ever-rising mine operating costs is overdone,” says Paradigm’s market analyst — and Jim Rickards’ right-hand man — Dan Amoss.

“I've followed the progress at Barrick (GOLD) and Newmont (NEM), and favor Barrick at the moment,” he says.

[Update: Yesterday, in fact, subscribers at Jim Rickards’ Strategic Intelligence took a tactical 20% trading gain on Barrick after buying near the panic lows on Feb. 29. We’re opening access to new members now.]

“Although if Newmont is even close to achieving its synergies on the Newcrest merger, the early 2024 panic in that stock will have been an awesome buying opportunity, looking back a year or two from now.

“Part of the art of fundamental investing is distinguishing temporary cost hiccups from permanent cost structure changes,” Dan notes. “And I still think that the big gold miners are being given almost zero advanced credit for the possibility of turning the unit cost curve lower in the future.

“Hence, it's a steep ‘wall of worry’ for gold mining shareholders to climb (i.e., the stocks can rally massively if they can execute on efficiency plans and forward EPS estimates rise).”

4Zimbabwe: Another Day, Another Dollar

“Zimbabwe has replaced its dollar with the ZiG, short for Zimbabwe Gold,” Bloomberg says. “The new unit is backed by bullion and foreign currency reserves held at the central bank.

“All told, the ZiG is the country’s sixth attempt at establishing its own currency since 2008, when inflation crossed 500 billion percent, according to International Monetary Fund estimates,” Bloomberg notes.

On Jan. 21, 2009, for instance, The 5 observed: “The country’s currency is eroding so quickly… The ‘government’ started producing [Zimbabwean dollars] in $10, $20, $50 and $100 trillion notes last week. Z$100 trillion was worth $33 Friday… Its value is likely cut in half already.”

Courtesy: eBayWorth more now than it ever was: “$163.16/ea”

To wit, a waggish reader sent this photo in 2009…

toilet paper Photo courtesy: 5 Min. Forecast

What’s so sad? “In 1980, when Robert Mugabe began his reign, one Zimbabwe dollar was worth as much as a British pound,” The 5 noted.

We’d like to get into the ins and outs of this new gold-backed currency, but time eludes us today… Another time.

5Is That “YOLO” Enough?

“I’m not well-off, but I have some money to invest,” a reader responds to Friday’s “Yolo” edition.

“I have been using what I can toward AI and crypto calls. Most of which have been lower-cost, bigger payouts. Yes, I’d like them to take off faster, but I’m OK if they take time to develop.

“With so many calls to choose from, I can’t possibly get into all of them. My strategy is lower cost for more calls with potentially higher reward. I don’t know if that’s YOLO?”

“I’m a 52-year-old retired firefighter. I have a steady pension that covers the bills, but I don’t really have $10K for a YOLO trip to Hawaii for me and my wife,” writes another contributor.

“I don’t really have enough time to invest in the markets where a 7% annual return will significantly increase my retirement savings over the next few years.

“I’m not quick enough to follow the meme coin craze for instant millionaire statues, but I do have some money in the crypto space (ADA, VET, HBAR, ARRR, DERO). But I’m not betting my life savings on them.

“This is why I like the 0DTE vehicle. I have been trading the 0DTE options for a couple of years. I have had some success and some failure but nothing consistent with my personal psychology. It’s hard to step away from a vehicle where you can take $500 and turn it into $1,500 in a matter of minutes.

“But the sword cuts both ways. I have also lost $1,000 in a couple of minutes instead of cutting quickly when the trade went against me, hoping it would turn around.

“I think there is an opportunity here with the 0DTE, and I’ll keep trying to tame my own mental shortfalls. But I will continue learning. Coming from a firefighter background, I have an aggressive, go get ’em personality… That’s why I enjoy the challenge of trading. I haven’t cracked the code yet, but I will.

“I look forward to your emails every day and appreciate the real-world analysis for regular people and not the pompous Wall Street fluff you get so frequently from financial newsletters.

“Keep up the good work!”

Emily: We greatly appreciate your support! But…

A word of caution about 0DTE (aka zero-days-to-expiration) options from Paradigm market analyst Dan Amoss: “In a nutshell,” he says, “ODTE options are a ‘financial innovation’ that have not yet been stress-tested. I can't say when a stress test will happen, only that we will likely see trading halts and circuit breakers.

“Zero-day options can only function through full market cycles — complete with Black Swans, which can arrive at any point.” (For further analysis from Paradigm, there’s more here.)

At the end of the day, however, you’re an adult… You do you.

Take care!

Best regards,

Emily Clancy
Associate editor, Paradigm Pressroom's 5 Bullets

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