Bitcoin’s price action has been relatively calm over the last six months with many simply holding their breath for May of this year. Bitcoin’s mining rewards are set to halve in a few months time which, fundamentally and based on macroeconomic factors, should lead to a massive bull run and renewed price action for the coin.

As the circulating supply of Bitcoin will cut by 50 percent, it seems natural that the demand should increase, and thus, the price of the coin would also increase. This is also predicated on history as the last two Bitcoin reward halvings have seen exponential growth in the price following these events.

However, a report from blockchain research firm Messari has outlined the dynamic nature of the continually evolving Bitcoin ecosystem and has warned that predicting a bullish run following this event could be a dangerous idea.

Will it, Won’t it?

Of course, when it comes to any sort of a prediction in Bitcoin is often pure speculation and hope – often traditional methods of technical chart analysis are blown out of the water from the nascent market. It is with this in mind that Messari has said there is no fundamental reason as to why the coin would spike after the upcoming halving, or any halving for that matter.

In terms of market fundamentals, the commonly held process which people are pinning Bitcoin’s potential movement after the halving is the stock-to-flow ratio. This ratio refers to a commodity and is often attached to gold. It is defined as:

“it’s years of inventory relative to annual supply. While the economic utility of a consumable good is created when it is destroyed or used up, the utility of investment assets lies in their possession and later resale. Industrial commodities, therefore, have low stock-to-flow ratios, this is to say, inventories usually only cover consumption demand for a few months. If there were no inventories at all, supply would have to correspond exactly to production and demand exactly to consumption. However, if there are inventories, consumption can temporarily exceed production.”

For things like Gold, and Bitcoin, there is a high stock-to-flow ratio and this is because there is a big facet of scarcity – and that will increase after the halving. However, what this model does not address is that Bitcoin is a terminally fixed supply asset.

For this reason, Messari rather classifies Bitcoin as a “perfectly inelastic good.”

How will the halving help Bitcoin

Messari goes on to conclude that if the Bitcoin halving is to lead to renewed price action it would have to cause an increase in demand that is not necessarily guaranteed after the supply is cut. That being said, Bitcoin demand is controlled by a lot more than simple macroeconomic factors, external factors have the biggest swing on its demand such as recent tensions between the US and China, as well as the US and Iran.