Bitcoin miners can be thought of as the most bullish market participants, as large capital expenditure must be made before any bitcoin is even acquired, followed by the operational expenses that come with the energy needed to mine.
This purge of inefficient mining operations causes network hash rate to temporarily drop off, leaving only efficient mining operations with cheap power sources and/or next generation ASICs to mine for blocks.
Not only does the halving event decrease the quantity of new bitcoin supply issued per day immediately, but in the process, remaining mining operations see their competitors ousted simultaneously.
It begins to sink in for many that Bitcoin has not “died” as they may have previously believed, and increased legitimacy, market liquidity, market infrastructure and the newfound support by respected investors increases demand, despite supply remaining completely inelastic.
A feeding frenzy is incited, as an exponential increase in demand for the monetary asset has to be priced against an absolutely fixed, verifiable supply.
Even with a new wave of adopters in the market, the last two halving cycles have witnessed a protracted drawdown as new demand is exhausted and is unable to keep up with supply hitting the market.
This creates an incentive for new market participants to enter, but because of the rapid increase in demand, supply of new mining equipment lags behind price.
Because of the difficulty adjustment that is built into the protocol, the miners continue to fight for the same amount of bitcoin, despite increasing competition and difficulty.
With increased sell pressure from miners later in the bull run, demand eventually cannot keep up.
This dynamic can be seen with the Puell Multiple Indicator, which is calculated by dividing the daily issuance value of bitcoins in dollars by the 365-day moving average of daily issuance value.
The bottom is in when the sell pressure from the purge of inefficient miners , speculators and long-term holders is met by equal demand from strong-handed bitcoin accumulators, who come to understand the superior monetary attributes of the asset.
All the while, hash rate continues to rise as new miners plug in as lagging demand to mine bitcoin by increasingly deep pocketed and sophisticated investors with cheap energy sources is finally felt in the market.
This is significant because it means that miner profitability has surged with the increase of price, while hash rate and subsequently difficulty has lagged far behind.
With this in mind, with a high amount of certainty it seems that the “top” is nowhere close to being set, with the parabolic advance still having much of 2021 to develop.
The traditional boom and bust cycle is well known at this point, but this cycle has seen developments that could alter the traditional market cycle that bitcoiners and investors have become accustomed to.
Throughout the course of previous bitcoin bull runs, early adopters and HODLers grew specutaturly wealthy in very short amounts of time, off of what often began with a small allocation.
However, this cycle comes with optionality that was not present in previous cycles.
No longer do long time holders need to sell their bitcoin to enjoy their recently exponentially increased savings/wealth.
Market participants, specifically those with an extremely large amount of bitcoin, now have the option to never sell any of their holdings, while living off of their stack.
This works because the centrally planned market rate for fiat currencies is coming up against the free market price of bitcoin; an absolutely scarce, digital monetary asset.