“Buy the rumor and sell the news” is an investment strategy that consists of purchasing a financial asset before an event occurs that is likely to have a positive impact on its price. Once the event occurs and the asset price increases, the investor sells his shares to make a profit. This strategy is based on the idea that financial markets often overreact when it comes to news.
In a few weeks, the Bitcoin halving will take place, an event programmed into the protocol code that halves the issuance or reward of BTC, from 900 BTC mined per day to just 450 BTC. That means, The liquidity that network miners can provide to various markets is reduced. This seems like a small thing considering that most of the BTC that will be around has already been mined (more than 19 million). However, most of the BTC once mined is kept out of the exchange markets, probably because people, companies or institutions use this money for long-term profits.
Each halving had a stimulating effect on the Bitcoin price. A smaller amount of money in circulation relative to greater demand causes the currency to increase in value. That's why expectations are high about what could happen if emissions are reduced by half. Likewise, the approval of Bitcoin ETFs in the United States appears to have been the reason for many to buy the rumor and sell the news. When investors were still waiting for approval, Bitcoin was worth almost $46,000. After approval, the price quickly rose to $49,000. But selling pressure apparently halted the rally immediately and some investors appeared to have taken their profits just hours after the “news” broke.
In fact, between January 9th and 11th, just as news of Bitcoin ETF approval was spreading, the network's miners transferred 110,000 BTC to exchanges. This figure represents the issuance (or reward payment) of BTC for 4 months and is valued at $4.8 billion at the current price. One could say that between the sell factor of the news and an oversupply, the current market situation has arisen, preventing the Bitcoin price from rising despite previous expectations.
Sell the news during the Bitcoin halving
The main consequence of selling the news is usually a drop in the price of an asset. Although the impact of this strategy for Bitcoin will not necessarily be permanent, it is possible that it will repeat itself if a significant portion of investors, including network miners, realize that conditions are favorable.
During the last halving, the industry experienced similar conditions to today, at least in terms of “buying the rumor” that the price would rise. The reason for this is that in the two previous halvings, specialists have identified price patterns that They support the idea that as the issuance of a scarce asset decreases and its adoption increases, its value multiplies. In other words, every time a halving occurred, there was an adoption event that helped Bitcoin's image become more relevant beyond a niche.
For example, in 2012, Bitcoin was worth $12 during the first halving. A year later, the value of the currency was $964. The second halving occurred in July 2016 when one Bitcoin was trading at $660. A year later the value was $2,550. By this point, the currency's reputation had reached many parts of the world and more and more influential public actors were talking about Bitcoin.
The stage was set for a great bull run during the last halving. However, a few months before the coronavirus crisis began. In May, the Bitcoin price fell to $8,740. A hundred days later it had risen to $11,950, but a year later it reached $55,000.
In none of the previous cases has the Bitcoin price fallen in the months following a halving. Whenever there was selling pressure, it probably came every time after a year or more if after reaching the maximum price of each cycle, the value of the currency decreased.
This time, the price of Bitcoin contains the key ingredients of the formula that leads to a bull market: the acquisition of a major institution (the US exchanges) and the reduction of their supply as the issuance is reduced. Conditions couldn't be better to sell the news, as there have never been as many people talking about or investing in Bitcoin as they are now. However, beyond the moment this potential phenomenon occurs, conditions could arise that cause Bitcoin price to reach new all-time highs sooner or later.
Therefore, a possible massive sell-off by miners facing costs to purchase equipment in the second half of the year could repeat the conditions that occurred when Bitcoin ETFs were approved: the expectation of profits (where whales could hit their target in the have their sights) and a new oversupply of BTC on the exchanges.