Bitwise CIO Matt Hougan doubts that current prices truly capture the potential impact of increased demand following the upcoming Bitcoin halving, based on the Efficient Markets Hypothesis (EMH). ).
Hougan raised critical questions on the limits of the EMH in anticipation of what the market will be like after the halving. He pointed out that while EMH suggests that the current price of Bitcoin reflects all available information, including the expected reduction in supply following the halving, it does not account for unexpected changes in market demand.
Hougan said:
“The halving is well known, so the current price reflects what will happen… (but) what happens if future demand for Bitcoin is higher than the market currently anticipates?”
The Bitwise CIO added that the market may have already priced in the direct effects of the halving, but the assumption could not anticipate the level of future demand.
Hougan referenced the work of Nobel Prize winner Robert Shiller, which highlights discrepancies between EMH predictions and actual market behavior, to support his arguments.
Shiller's research suggests that while the EMH may be applicable on a micro-scale to individual stocks, broader market trends can defy these predictions.
Forced or willing sellers
Hougan also looked at the dynamics between “forced” and “voluntary” sellers within the Bitcoin ecosystem. He explained that miners, who face high operational costs, are primarily forced sellers and will see their contribution to market supply decline significantly after the halving.
This reduction shifts the market trend towards willing sellers, who must be forced to give up their Bitcoin by offering higher prices. Willing sellers are mostly long-term holders.
He argued that this change could create “significant upward pressure on prices” if the market has actually underestimated future demand, suggesting a bullish outcome as increased demand meets limited supply.
As the Bitcoin community and investors around the world prepare for the halving, Hougan's critical analysis provides a thought-provoking perspective on how traditional economic theories such as the EMH apply to dynamic markets and often unpredictable aspects of cryptography.
His ideas suggest that investors should consider potential deviations from established market forecasts, highlighting the complexities and uncertainties involved in crypto investments.
Bitcoin was trading at $64,300 at press time, approximately seven hours before its fourth halving.