The post originally appeared on the Unbounded Capital website and we republished with permission from its author, Dave Mullen-Muhr.
A large percentage of the interviews and articles released in anticipation of this May’s BTC block reward halving paint a bullish picture based primarily on conclusions made from backward looking explanations for the past performance of BTC during its two prior halvings. Suggestions that factors like the “stock to flow ratio” and arguments about what is and isn’t “priced in” dominate the crypto mindspace but they are missing the point. The halving itself is not directly related to the speculative value of BTC. Rather, it is a key factor for the business operations of miners. The state of BTC mining as an industry has implications short term on BTC price, but in most instances this is only true indirectly. What curious investors should be considering is how this and future halvings will affect the long term business of mining and how this will impact the fundamental value of their investments.
At Unbounded Capital, we are focused on understanding these fundamental changes and their second order implications on asset value and network viability. What is chain death and is it adequately factored into BTC holders and miners projections and risk analysis? What is the best path forward for profit seeking bitcoin miners?
The irrelevance of stock-to-flow
First let’s scrutinize the popular idea of the significance of stock to flow ratio, or the suggestion that the emission schedule of new BTC being cut in half will have a significant and positive impact on its price from the supply side. This suggestion seems not to account for the relatively insignificant size of the emission schedule of new BTC as a percentage of its current trading volume.