The Breakdown - The Halving Shows Satoshi's Marketing Genius

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Sunday, April 21st, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, you know this weekend we had to talk about the halving. There is always a great debate on whether it's priced in.

Starting point is 00:00:43 What it really means is it significant? And even if it is significant, what is the reason it's significant? Today we're going to start with a piece by Jim Myers in Blockworks called Bitcoin's most promising least dramatic halving is almost here. Jim writes, we're just days away from the next Bitcoin halving an on-chain activity leading up to the event points to a cycle unlike any other. As public trust in Bitcoin surges were seeing transaction volume surpassed previous cycle, and more gradual but consistent price growth. This combination of record high transactions and relative

Starting point is 00:01:11 price stability suggests a milder halving event followed by a more sustained growth cycle in the coming months. The industry has experienced a sustained increase in Bitcoin transactions leading up to every consecutive halving, with 2024 seeing the highest daily transaction volume and more extreme spikes in activity compared to previous runups. And while an increase in transaction volume is to be expected with every new cycle, this year's activity appears to buck several trends. For instance, while daily transaction volume fluctuated similarly during the lead-up to the 2016 and 2020 halvings, it's skyrocketed this year. On average, the volatility of day-to-day transaction volume in the past three months is double that of the 2020 run-up, whereas the previous run-up saw only a moderate

Starting point is 00:01:49 uptick relative to the 2016 cycle. At the same time, overall transaction volume has rarely dipped to levels seen in previous cycles, as the market experiences a period of volatile but elevated activity. Additionally, this year's daily transferred volume is similar to that of the 2020 run-up in terms of Bitcoin. But the actual dollar value of these transactions is multitudes higher given Bitcoin's price appreciation. This contrasts with the past trend when Bitcoin transfers drop between 2016 and 2020. A growing daily transferred volume suggests growing user engagement and comfort, with significant value transfers on the Bitcoin network as we approach this 2024 halving. Unchain activity from the past three months also shows more consistent price support for Bitcoin

Starting point is 00:02:26 this time around relative to any other recent cycle. leading up to the 2024-having, Bitcoin exhibited smaller price swings relative to every run-up since 2012, with a standard deviation of 2.2, compared to 4.3 in 2020 and 2.9 in 2016. This reduced price volatility, combined with the second highest average Bitcoin daily price increase of any halving run-up, points towards a growing public confidence in the Bitcoin market. This holds true even when accounting for Bitcoin's recent price drop, and the fact that prices are twice as stable as the previous run-up and more consistently positive bodes well for the industry. Bitcoin's gradual sustained price growth is especially remarkable given the heightened volatile

Starting point is 00:03:01 transaction volume in recent months, which is usually accompanied by erratic price movements. This consistent price support suggests that investors are increasingly viewing Bitcoin as a more stable asset, contributing to a more mature, self-reinforcing Bitcoin ecosystem. Bitcoin's outlook looks even more optimistic when considering that net flows reached a record-breaking 2.3 million Bitcoin over the past three months, among wallets that hold at least one Bitcoin, a 45% increase over the previous cycle. While Bitcoin whale inflation, inflows dropped 15% between 2016 and 2020 cycles, 2024 has not witnessed any major sell-off events. Instead, 2024 is setting multiple new records in single-day Bitcoin whale inflows, which is a strong

Starting point is 00:03:38 indication of Bitcoin's continued deep-pocketed support. Unlike the frenzy new user activity that propelled the previous cycle, we are seeing signs that this year's pre-having activity has a higher rate of participation among more experienced existing Bitcoin holders. As expected, the number of active daily addresses has increased relative to 2020, though not as significantly as the jump between 2016 and 2020. However, the number of new Bitcoin addresses created leading up to the halving is lower than in 2020, which suggests that current market activity is largely driven by existing participants rather than new entrants. The argument that existing Bitcoin holders are deepening their engagement seems especially true given

Starting point is 00:04:12 the trend-defying surge in transaction volume in recent months, relative to the number of Bitcoin addresses created this year. It's also worth noting that net Bitcoin outflows from centralized exchanges are down 13% compared to the 2020 run-up, although this run-up is still seeing significant net outflows of Bitcoin from exchanges. Net outflows are often interpreted as a bullish signal, as more Bitcoin is transferred to private wallets and sell pressure drops as the supply of tradable Bitcoin decreases. And while 2024 also logged the highest single-day inflow of Bitcoin of any having run-up, this may simply indicate more nuanced market behavior as market participants split between holding and trading. All of which is to say, the fact that net Bitcoin flows

Starting point is 00:04:48 to two and from exchanges have not skewed excessively one way or another, relative to past cycles indicates a more balanced, moderate investor sentiment as we approach the next halving. A significant cohort of the crypto community expected a massive pre-having dump leading up to this year's halving, but these fears appear to have been overblown. While Bitcoin's value has trended down in recent days, this is still the first cycle to see a new all-time high in Bitcoin's value pre-having, and the 2024 run-ups still appears to exhibit the most consistently positive growth of any recent cycle. From this perspective, the fact that Bitcoin's value has not experienced any massive upward swings recently may be taken as a positive sign. Rather than undergoing

Starting point is 00:05:22 seismic price shifts and frenzied sentiments, we may be witnessing the beginning of a new phase in Bitcoin's history, one characterized by gradual but consistent growth, sustain market confidence and more balanced user behavior. In contrast to the dramatic ebbs and flows of some other crypto sectors, this even-killed growth may be exactly what the industry needs. Hello, breakers. Today's episode is sponsored by Ledger. As another cycle ramps up, it's another chance to think about your Bitcoin custody best practices, and of course, to help all the new folks do the same. Ledger is the global platform for securing Bitcoin and other crypto. Ledger combines both hardware wallets and the Ledger Live app to offer the best way to buy, sell, swap, and stake without sacrificing on security

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Starting point is 00:06:49 The event is three days of jam-packed content, networking, and so much more. Some of the speakers at the event include Chris Dixon, the founder and managing partner at A16Z Crypto, Sergey Nazaroff, the co-founder of Chainlink, Kathy Wood, the CEO of Arc, Hester Perce, commissioner, of course, from the U.S. SEC, and Tom Emmer, Republican Majority Whip for the U.S. House of Representatives. Visit Consensus-24.com to learn more and save 15% on registration with the code breakdown. That is 15% on registration with the code breakdown. Now, I want to read a second piece before I comment.

Starting point is 00:07:23 It's also in Blockworks, and it's from our favorite philosophy trio, Andrew Bailey, Bradley Rettler, and Craig Wormke. The piece is called Bitcoin's halving is a major spectacle. That's the whole point. Satoshi Nakamoto could have chosen a boring issuance schedule. Instead, he imbued Bitcoin with a seasonal fireworks display. They write, The Bitcoin halving is imminent, but even if you know what it is, you may not know why it is.

Starting point is 00:07:44 In our view, the havings exist to make Bitcoin interesting, and interesting things attract attention. Bitcoin's pseudonymous inventor Satoshi Nakamoto could have chosen a boring issuance schedule. Instead, he imbued Bitcoin with a seasonal fireworks display commanding attention from an increasingly wide and diverse group of Bitcoin users. Bitcoin famously has a supply cap of 21 million, 1.3 million of which remain unminted. The network will mint these coins through the year 2140 and the same way Bitcoins have always been minted.

Starting point is 00:08:10 Satoshi designed the system himself to reward miners who publish new blocks. He could have designed those rewards to hold steady over time, with a constant amount per block, say 10, or he might have designed the rewards to steadily decrease at a constant rate. Satoshi instead chose halvings. Every 210,000 blocks, the block reward suddenly drops by half. The first 210,000 blocks each yielded 50 new Bitcoin to the miner. The next 210,000 blocks yielded 25, and so on. Tomorrow and for the next four years, each block will yield 3.125 Bitcoin. By their very nature, halvings bring an economic shock, especially to miners.

Starting point is 00:08:43 Block 840,1 will appear roughly 10 minutes after block 840,000. But the minor of block 840,000 will earn 400,000 worth of new Bitcoin, while the minor of block 840,000 will earn only 200,000 worth of Bitcoin. Bitcoin's volatility owes in part to its halving schedule. If demand remains relatively constant despite a sudden drop in newly available Bitcoin, Bitcoin's price will likely increase. At least that's what's happened historically. Having sparked discussion about Bitcoin's price volatility in the short term, and price trajectory in the long term. Each halving brings up the same inevitable questions, especially considering past while post-having price swings. What will we see this time?

Starting point is 00:09:21 For weeks now, TV networks have been interviewing CEOs and Bitcoin thought leaders about the potential impact that the halving might have on Bitcoin's price. We think Satoshi anticipated the potential for this kind of frenzy, and deliberately chose the four-year-having cycle to attract attention to Bitcoin. Sadoci was familiar with the idea of global spectacles that happen every four years. The World Cup and the Olympics garner massive attention, especially from people who otherwise rarely watch sports. Would you watch the Olympics annually? Monthly? Not likely.

Starting point is 00:09:47 These events garner interests partly because of their rarity. The interview allows for hype and interest to build. Networks run specials on the athletes expected to make a splash. Magazines run photo spreads, and when the opening ceremonies finally broadcast, 3 billion people watch worldwide. Satoshi was a master promoter. He designed logos, built chat forums, and schemed with users on those forums about how to stir up interest in Bitcoin. He also designed a system to capture interest by being interesting. Compare Bitcoin to gold. Gold has a global brand earned over millennia, but when's the last time gold mining caught major headlines? If we mined an asteroid for

Starting point is 00:10:20 gold or discover that we had mined every last nugget, that would capture attention. As things stand, however, gold mining is steady, predictable and unremarkable. Bitcoin is predictable too, yet it is predictably unsteady, especially with the halvings thrown in, and thus remarkable. Bitcoin is much younger than gold, with just 15 years since its creation. Yet Bitcoin's quadrennial halving events, and corresponding price fluctuations garner headlines worldwide. Interest is snowballed with every having as have new users. That's the goal. Bitcoin halvings are spectacles by design, and the design seems to be working. After all, it brought you to this article. Back to NLW here. As to the first piece, about whether we are getting a more calm, rational,

Starting point is 00:10:59 smoothed-out market. I think to some extent this was inevitable, especially in a world post-ETs. The reality is that we just have a more diverse Bitcoin buying and holding base now, and I think that's going to drag it away from the craziness of crypto to the normalcy of traditional markets, at least to some extent. Not entirely, Bitcoin will never be fully just an asset that sits alongside everything else in your portfolio. But I think there will inevitably be some amount of smoothing. As to the second piece, though, this idea that the having schedule was chosen to use a crass term for marketing, I completely agree with this. And the one point that these three fine folks don't make, but that I will add, is that it's not just that a four-year cycle

Starting point is 00:11:38 creates a spectacle. It's that this specific thing creates a moment every four years where people look out across the world of assets whose supply continuously appreciates and compares them to Bitcoin, who is going through this dramatic moment of reduced supply, or at least reduced supply issue. We've seen the way that that contrast captures people's attention. It was perhaps most profound last cycle when the COVID money printers were revving up right at the same time as the having happened. The contrast might be a little less dramatic this time, but it still serves as a reminder about what makes Bitcoin different. And when people appreciate what makes Bitcoin different, they tend to want to buy a little bit of Bitcoin. So friends, hope you had a great

Starting point is 00:12:22 having weekend. Can't wait to talk about all this again in four years. For now, big thank you today's sponsor. Check out the Ledger Bitcoin Orange Nano. 5% of sales will go to support Bitcoin development. Until next time, be safe and take care of each other. Peace.

The Breakdown - The Halving Shows Satoshi's Marketing Genius

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