Strix Leviathan, a company building institutional-grade trading algorithms, has conducted research that leads them to believe there is no correlation between cryptocurrency returns distributions, and block reward halving events. This is contrary to popular belief that the disinflationary supply schedule changes the equilibrium demand-supply zone, July 21, 2019.
Statistical Distribution Shows No Correlation
Bitcoin and Litecoin use the same block reward halving schedule, though they do not coincide as Litecoin is much younger than the Bitcoin network. Strix Leviathan’s research shows that both assets react in different ways before and after the halving event has taken place.
Litecoin tends to outperform the broader crypto market before its halving but performance falls to the bottom 25 percent of the market after the halving is complete. Bitcoin, on the other hand, displays poor performance before the halving and skyrockets in the weeks after the halving has been implemented.
A probable explanation for this is demand from the market. The main investment thesis with a halving event is that the gradual disinflation will reduce supply and drive demand, leading to a premium in price and appreciation in value. However, since demand is being artificially driven in a systematic manner, if initial demand is relatively low – like in Litecoin- it doesn’t give the price a significant boost.
With Bitcoin, demand always exists and new investors and users are always coming into the market, so the supply shock does indeed play a vital role in propelling price. Halvings are also a mental game; Litecoin’s surges before the event can be attributed to investors flocking to it expecting the supply shock to give them huge returns. Bitcoin’s great performance after the surge can be accrued to the natural demand that exists for it in the market.