Ethereum, The Triple Halving

On May 7, 2021, host of the Behind the Markets podcast Jeremy Schwartz, Global Head of Research at WisdomTree, was joined by Guest Host Corey Hoffstein, Co-Founder and CIO of Newfound Research, to talk to Nikhil Shamapant (@squishchaos) about a new research paper on Ethereum, specifically a series of events that he views as a “Triple-Halving.” References below to statements made by “Guests,” generally refers to a statement made by either Corey or Nikhil and is not necessarily attributable to both, but has been used for editorial convenience.  

What is “Halving”?

The Guests noted that the cryptocurrency world was introduced to the concept of “‘halving”’ as part of the bitcoin protocol. It is well known from the bitcoin white paper that there will be a limited supply of 21 million bitcoins. The mechanics of how this is achieved comes through a consistent reduction in the reward paid to bitcoin miners over time. At rough intervals of four years, the rewards paid to miners for securing the network with proof-of-work to verify transactions, the specific reward paid to miners is cut in half.  What is “Halving”?

Even though the halving is known well ahead of time, the Guests noted a belief that there are interesting supply–demand dynamics that tend to play out in real time in the bitcoin marketplace. Mining bitcoin is very cash intensive—the computing hardware is expensive, the electricity is expensive, and there is not a high profit margin left after mining is complete. To pay for these activities, the Guests expected that miners will tend to sell most of the bitcoin they earn from the mining process. On the day after the halving, miners may sell less bitcoin on the market than on the day before. While demand on those exact days may fluctuate, if demand stays even close to stable, but the supply from miners is reducing, the Guests indicated that prices may be pushed upward. The most recent halving occurred in May 2020.

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William K. 1 month ago Member's comment

This article is rather educational, indeed. Now it becomes clear that the "value" created by Bitcoin miners is functionally no different than winning in a video game, with the only actual investment being in the power to run the computers. So why claim that this has any value to others? The whole process looks to exist as a means of having a record-less checking account, but possibly with somewhat better security, maybe. So at least with Bitcoin it looks like folks are investing in a cloud of smoke that swirls into pretty patterns. Looking like a giant leap of faith, trusting in an unverified deity. Not an investment that I would recommend.