Crypto lovers are eagerly anticipating the Bitcoin halving that’s coming up soon.
It all comes down to supply and demand…
Currently scheduled for May 12, 2020, the supply of new Bitcoin will be cut in half. It will go from the current rate of 12.5 Bitcoins every 10 minutes to 6.25 Bitcoins.
This isn’t the first Bitcoin halving. The last two times, the price went full supernova after the halving. So it could be an event worth watching.
Will I trade it? It depends. I tend to stick to low-priced stocks … but I have traded Bitcoin and Ethereum in the past.
And I love to trade low-float penny stocks — the basic economics are all about supply and demand. Low-float stocks have low supply. When the demand surges, the only way for the price to go is up…
Low Supply + High Demand = Price Increase…
So how can we apply the supply-and-demand concept to the Bitcoin halving … and what can it mean for traders?
Table of Contents
- 1 Is There a Case for Bitcoin?
- 2 Oil Dropping to –$37 Per Barrel and Bitcoin Halving
- 3 The Chart
- 4 Managing Risk
- 5 My Approach to Trading and StocksToTrade
- 6 The Bitcoin Halving Conclusion
- 7 One Platform. One System. Every Tool
Is There a Case for Bitcoin?
Bitcoin is a pretty new development in the world. I actually love cryptocurrencies and Bitcoin. Blockchain technology is amazing. It’s already changed the world. I think there’s huge potential for us to use it to advance as a civilization.
The 2020 Bitcoin halving — aka ‘the halvening’ — is only the third time Bitcoin mining production has been halved since Bitcoin’s 2009 inception.
After the first halving in 2012, the price jumped from $11 before to $1,000. The second was in 2016, and the price jumped from $700 to $20,000.
What will happen this year? It’s anyone’s guess. I’ve seen projections anywhere from $250K to $333 million! But those are just projections and pure speculation. Don’t trust predictions, projections, or speculation in any trade. Ever.
Is Bitcoin Better than the U.S. Dollar?
The strongest case Bitcoin bulls can make is that the supply of Bitcoin is fixed at 21 million coins. After all 21 million coins are mined, there will be no additional new supply. That won’t happen until 2140. So we likely won’t see it.
But this is different from the money we’re used to — like the U.S. dollar.
Whenever the Federal Reserve Bank, aka the Fed, needs more money, it issues more money. Over time, the dollars you have in your wallet have less buying power. And the Fed will continue to add money into the system forever. So your dollars will always be worth less than the year before. That’s inflation.
Last September the banks were having trouble and needed more cash. So they sold loans. The problem? No one would buy them because no one had enough money. So the Fed bought them. It created money out of thin air and bought these loans from the banks. And this continues today. You probably read about it, it’s the repo market liquidity.
Right now, as the coronavirus pandemic grinds our economy a halt, banks and local governments across the U.S. need to lend out money that they don’t have. So the Fed’s issuing more money for the loans.
This oversupply of dollars will likely cause more inflation. How much exactly is anyone’s guess. So people look for alternatives to store the value they have.
Gold has long been the strong standard of value, but today you have more options. And some argue crypto has the potential to provide that store of value.
But potential buyers don’t always translate to real buyers…
Who’s Buying Bitcoin?
After the first two Bitcoin halvings, tons of new buyers bought in. That sent the price through the roof. It was an exciting time — a lot of people wanted a piece of the action and excitement.
Bitcoin is old news now. People are still buying, but it’s not new for a lot of folks. That’s why it’s important to always have an exit strategy. More on than in a bit.
Oil Dropping to –$37 Per Barrel and Bitcoin Halving
Bitcoin is NOT oil. Duh, right? Well, there’s a critical lesson in supply and demand from this recent and historic price drop.
As the coronavirus pandemic swept across the globe, governments issued stay-at-home orders. Almost overnight everyone stopped traveling. That means far fewer car trips and flights…
And with no one traveling, the demand for fuel dropped dramatically.
On April 12, President Trump brokered a deal between OPEC and Russia to cut global oil supply. But it didn’t matter. There were still no buyers. The price kept dropping.
On April 21, the price of oil went lower than anyone thought possible … all the way to –$37. The price of oil went negative for the first time in history. Traders were literally paying to get rid of oil contracts.
So What Does Oil Have to Do With the Bitcoin Halving?
I’m getting to that now … Remember the laws of supply and demand? They’re the driving forces in all markets. The stock market, oil futures contracts, even Bitcoin.
When the oil supply got cut, it didn’t matter. There was still no demand … so the price fell through the floor.
Bitcoin is getting a supply cut. But I don’t know if that will attract enough new buyers to make another 1,000% move after the halving. It could … But when I try to build the case for buying Bitcoin, I personally just can’t do it.
I love technical analysis. If the chart is crap, I don’t trade it no matter how good the story is. I only trade when the chart offers me the right risk/reward.
Here’s the long-term chart for Bitcoin:
Does this chart look familiar to you? If you follow me and Tim Sykes, you know this pattern instantly … I call it an ugly chart, Sykes calls it “the crow.”
I recently made a video describing the chart patterns I look for and the chart patterns I avoid. This is one I avoid. Compare the last chart in the video to the one above.
Some crypto diehards are probably thinking, “Who cares about the chart, Tim? Bitcoin’s here to stay! I won’t miss out on another 1,000% gainer…”
I get it. This could be a once-in-a-lifetime event. But let me offer you a little tip.
Whenever you trade a stock or crypto, you need to set a stop. That’s the point where if the trade hits that level, you cut your losses. It’s part of your trading plan and it’s when you know to get out of the position.
It’s OK to be wrong and take a small loss. You should never take a big loss because you’re stubborn. All traders lose sometimes. But how you lose is super important.
Bitcoin to the Moon!
Let’s say you’re right and I’m wrong about the Bitcoin halving. If you decide to buy some Bitcoin and it goes to the moon, don’t hold it forever. In 2017, it peaked at $20,000 … but it didn’t stay there long. The price has sunk below $5,000 several times since then.
Take some profits along the way. If you think it could keep going, take partial profits and move your stop up to protect your gains.
Don’t get greedy. That’s a quick way to give up all your gains. Taking profits is just as important as cutting losses.
My Approach to Trading and StocksToTrade
I never try to hit home-run trades. I try to take consistent, predictable trades. When I’m wrong, I cut my losses quickly and live to fight another day.
That’s why I helped build StocksToTrade, the best trading platform to help traders find the biggest gainers and fastest-moving stocks every day. I also get to be part of the best trading chat room — seriously. I’d argue it’s the only chat room that matters.
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I don’t wait for years for the right catalyst … STT helps me scan for the biggest movers every day. And I trade the same way in a recession as I do during the strongest bull markets.
The key to trading consistently? I manage my risk. When I’m right, I take profits, and I cut losses when I’m wrong.
Don’t let a small mistake wreck your entire account. Play the long game and learn to trade smart.
Join me and a community of like-minded traders as we face the markets every trading day. StocksToTrade Pro is our mentorship program to help traders of all levels learn to trade smarter. You get access to twice-daily webinars, cutting-edge lessons, and our stellar chat room.
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The Bitcoin Halving Conclusion
No one knows what will happen next with Bitcoin or the overall market for that matter.
Is there a strong case to be made for Bitcoin right now? It depends on your trading strategy. The new supply is about to be cut in half. As the Fed adds more money to the system every day, it drives up inflation. That could mean those with cash will turn to Bitcoin as a way to store value.
But Bitcoin’s not the only choice out there. And its unstable price could scare away would-be investors. A lack of new buyers would likely mean the price will continue to fall.
No matter what you decide, the most important thing you can do is manage your risk.
Do you trade Bitcoin? What do you think about ‘the halvening’? Leave a comment below and tell us!
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