Bitcoin's Price May Not Go Up After Halvening, Coinshares CSO Says

KEY POINTS

Meltem Demirors says that Bitcoin halving will not boost BTC prices
The more BTC turns into an investable asset, the more it deviates from its value
No rally in 2020 could spell trouble for miners

Bitcoin (BTC) "hodlers," or those who prefer to own the popular cryptocurrency for the long run, are expecting for the halving event scheduled next year to be a full-on bullish event. These people could even have purchased BTC at exorbitant prices and are holding on for dear life.

These Bitcoin hopefuls are expectant that a rally would lift the value of whatever amount of cryptos they have in their wallet. However, to Meltem Demirors, the Chief Strategy Officer of the digital asset management firm Coinshares, the halving event, tentatively scheduled on May 14 next year, will do nothing for BTC's prices. She offered her reasons in a series of tweets.

Demirors believes that due to the "robust derivatives," most investors would trade that financial instrument rather than the underlying asset. This was seen in 2017 when CME Group launched its Bitcoin futures contract which led to the break off its highest recorded price at $20,000 that preceded a 2018 bear market. This year another futures contract for Bitcoin debuted in the market in Bakkt, a joint venture of ICE, Microsoft, and Starbucks.

1/ there is a very real possibility the price of bitcoin does not go up after halving.

for the first time, there is a robust derivatives (futures, options) market for bitcoin. most firms looking to speculate on bitcoin will trade a derivative, not the underlying.
— Meltem Demirors (@Melt_Dem) December 24, 2019

When investors flock to derivatives, according to Demirors, producers lose their power to set prices.

Demirors tweeted, "2/ A topic that’s been studied in other commodities markets is how pricing is set. Bitcoin is, arguably, a digital commodity. Normally, producers set the price of a commodity (classic S = D = P from Econ 101) when derivatives take off, producers lose the right to set prices."

2/ a topic that’s been studied in other commodities markets is how pricing is set. bitcoin is, arguably, a digital commodity.

normally, producers set the price of a commodity (classic S = D = P from Econ 101)

when derivatives take off, producers lose the right to set prices
— Meltem Demirors (@Melt_Dem) December 24, 2019

Demirors also posted a chart of oil as an example wherein, for the last 20 years, the commodity was chiefly driven by speculation on Brent crude futures. Her last point was that Bitcoin becoming more of an investable asset would push it away from its real value.

5/ the more bitcoin becomes an investable asset, the more it’s price becomes decoupled from its value and its supply and demand.

it becomes yet another backwater in the great game of global speculation. it becomes “financialized.” it becomes correlated to macro markets.
— Meltem Demirors (@Melt_Dem) December 24, 2019

The end of mining?
If what Demirors is saying is true, then that could spell trouble for BTC miners. A report by LongHash could vouch for Demirors' prediction that the halving will not boost Bitcoin's prices, but the blockchain data and news platform doesn't echo similar points. Instead, LongHash stated that there is no evidence that the 2012 halving caused the 2013 rally, and the 2017 bull run wasn't caused by the 2016 halving but by the ICO boom.

If both predictions become true and prices stay the same -- or worse, lower -- then miners would have to depend on transaction fees to sustain operations further into the future as Bitcoin rewards keep slimming once every four years. The whole industry is already in pain, according to LongHash, and no rally would force smaller miners to tap out.