Introduction to Halving Cycles

Article by Lesia M


· Bitcoin is a scarce digital asset. The total amount of coins is limited to 21 million;

· Bitcoin mining follows a pre-determined schedule and will continue until all coins are mined by the year 2140;

· According to its protocol, Bitcoin mining flow will be cut in half every 4 years. We witnessed the third halving event in May 2020;

· Stock-to-Flow model, traditionally used to evaluate scarcity of commodities, such as gold, is highly correlated with the Bitcoin price;

· Bitcoin price followed a similar pattern over the course of two previous halving cycles;

· According to Stock-to-Flow projections, the price of BTC will hit a six-figure number over the course of current halving cycle;

· Backtested data shows that JKL strategy managed to capture BTC price action over the previous 4-year cycles, while averting speculative risks.


Understanding Bitcoin halving cycles is probably one of the most important topics concerning Bitcoin price predictions and valuation. A vast range of long-term forecasts base their research on the notion of Bitcoin halving, including the notable Stock-to-Flow model which will be covered later in this article.

To kick off our research, it is important to clarify that the sole purpose of the learning material compiled in this publication is to inform the reader of the most common practices used to forecast Bitcoin price development. Financial models and macro arguments highlighted in this research do not represent the point of view of JKL Capital.

In fact, our team believes that it is crucial to stay modest when talking about any Bitcoin predictions. JKL sees the potential terminal value of BTC as an extensive range, making its outcome rather binary. Best-case scenario of this projection will take place if Bitcoin sees a wide institutional adoption. We now observe as cryptocurrencies are increasingly becoming an accepted part of financial markets. However, at the point where Bitcoin stands now, it would be irrational to only rely on best-case scenario predictions. JKL Capital sees the long-term investment in Bitcoin as a bet on the future, where this asset acquires all features of ‘digital gold’ and is widely accepted as such. Ultimately, Bitcoin at this point is a hypotheticalstorehold of wealth, rather than a factual one.

At JKL Capital we position our fund as a digital asset trading fund (opposite to an investmentfund with a long-term orientation). JKL proprietary trading system develops its models to predict short-term price movements, with usual holding periods varying between one hour and a couple of days. In order to make these predictions, our machine-learning system constantly watches a wide range of indicators to generate trading signals and optimize positioning in the market.

This trading approach allows our fund to minimize correlation between our strategy’s performance and price developments of the underlying digital assets. For example, in the first quarter of 2021, our strategy’s correlation with BTC daily returns was at -0.153, while our hourly correlation with BTC since inception is as low as 0.0586. Since going live in September 2018, JKL strategy has generated a proven track-record of taking profits out of digital assets’ volatility, regardless of whether the underlying market had a bullish or bearish trend.

Figure 1. Performance of a $100 investment in JKL Strategy vs BTC & their 30 days running correlation


In the Bitcoin white paper, Satoshi Nakamoto, the creator of Bitcoin, describes the digital currency as ‘a purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution’. In the original protocol, he limits the number of bitcoins that will ever come into existence to 21 million coins, and designs Bitcoin mining to unfold predictably until 2140. At the time of writing, there are more than 18.680 million bitcoins in circulation.

In general terms, these unique characteristics of bitcoin’s software design provide the crypto currency with anti-inflationary properties, turning it into a scarce asset. In fact, Bitcoin is the first ever scarce digital asset to exist. In this aspect, Bitcoin is often compared to gold and bitcoin mining is repeatedly viewed as an analogy to gold mining, sole differentiating point being the predictable schedule embedded in bitcoin protocol.

Apart from the limited supply and a pre-determined schedule, bitcoin’s design implies that every four years (or every 210,000 blocks) the number of bitcoins that can be mined is cut in half. Essentially, whenever a block of bitcoin is mined, the miner receives a reward in a form of BTC payment. Every 4 years the reward per mined block decreases by 50%.

Figure 2. Historical bitcoin halving dates

Source: CMC Markets

Just like that, in November 2012, the reward per block went down from 50 bitcoins to 25. In July 2016 the award went down to 12.5 per block, and back in May 2020 we witnessed the third halving event, whereby the award per block mined dropped to 6.25. These are the fundamentals of Bitcoin halving.

As mentioned earlier, a broad range of technical analysis directed at predicting BTC price movements use the notion of bitcoin halving events. Indeed, Figure 3 visually presents BTC price movements after each halving event on a logarithmic scale, where each vertical axis value is 10 times larger than the previous one. From the graph we can see that the price movements in all previous 4-year cycles are highly correlated and follow a very similar pattern.

Two previous halving events in November 2012 and in July 2016 have both led to the most powerful bull runs in the history of Bitcoin. After the first halving, market witnessed a price increase of more than 94x at its peak (going from $12 on 28/11/2012 to a peak of $1,137 on 29/11/2013).

After the second halving event, price peaked at more than 28x (with bitcoin price going from $650 on 11/7/2016 to $18,674 on 18/12/2017).

Figure 3. Bitcoin value following halving events

The current bitcoin cycle started with the third halving event, that took place on the 11th of May 2020. We have yet to see whether bitcoin’s price movement will resemble trends of the previous two bull runs, however, BTC price has already seen a 7x increase since the last halving event that took place in May 2020 (going from $8,636 on 11/5/2020 to beyond $60K in April 2021).

Four-years cycles which follow halving events are often referred to as epochs. Bitcoin entered its first epoch since its launch date on January 9, 2009 and is currently going through the 4thepochs. Following the halving schedule, summarized in Figure 2, altogether bitcoin will go through 7 epochs, last one being the terminal epoch in which we will witness the last bitcoin to ever be mined.

Comparing these epochs side by side on a logarithmic scale gives us a better understanding of the similar patterns they follow. In Figure 4, the scale of each epoch is 20 times larger than the previous one.

Judging by the price movements that followed previous two halving events in 2012 and 2016, BTC price was first pumped up by the market out of proportion, then dropped down in a panic sell off, to eventually stabilize within a price range. This behavior is typical for those market participants, who view bitcoin as a purely speculative asset.

In the following section we will see how the price, of the the end of each epoch, is very close to the ‘fair’ price predicted by the Stock-to-Flow model.

Figure 4. Bitcoin epochs following halving events


One of the most referred to models used to forecast Bitcoin price development (which also relies on the notion of bitcoin halving cycles), is the Stock-to-Flow model. Stock-to-Flow ratios are traditionally used to assess the existing stock of a commodity against the flow of new production, specifically for commodities that are regarded as a store of value (like gold, silver and platinum).

First introduced by PlanB in March 2019, Stock-to-Flow Bitcoin model focuses on the crypto currency’s resemblance to ‘digital gold’ in an attempt to quantify the scarcity of the digital asset.

SF = Stock/Flow, where stock is the number of existing coins and flow is the yearly production.

At the moment of writing, Bitcoin has a stock of 18.7 mill. coins and a yearly flow of 0.3 mill. (all in all, there are 1.3 mill. coins to be mined over the current 4-year cycle, see Figure 2). This gives us a stock to flow of 62, which means that it takes 62 years of mining to produce the current supply. This also brings current stock to flow ratio of bitcoin close to that of gold. However, with a market cap of around USD $1 trill., BTC market cap still remains just under 12% of the total market value of gold.

In his study, PlanB also confirms a statistically significant relationship between bitcoin’s Stock-to-Flow and market value. In Figure 5, Bitcoin price is compared to the Stock-to-Flow ratio line. Correlation between the two can be observed historically, and PlanB suggests, that ‘we can project where price may go by observing the projected stock-to-flow line, which can be calculated as we know the approximate schedule of future Bitcoin mining’.

Figure 5. Stock-to-Flow Model: Bitcoin

Source:, Created by: PlanB

Coloured dots on the chart represent remaining days until next halving event, whereby red color signifies the beginning of a new 4-year cycle and dark purple signifies its end. Model variance chart underneath shows the divergence of bitcoin price from the Stock-to-Flow model, turning from green to red whenever Bitcoin price spikes higher than the projected SF.

Stock-to-Flow model introduced by PlanB predicts a six-figure price in the current cycle, until the next halving event in 2024. Both Figure 4 and Figure 5 show, that today’s point in the 4-year cycle historically has been a very bullish period for Bitcoin, characterized by a combination of high demand and limited supply. Indeed, the current cycle is quite unique in a way that we see Bitcoin’s monthly supply consistently decreasing since the beginning of 2021. Bitcoin balances on the exchanges have been consistently draining, as BTC holders are taking their coins off the market and placing them into cold storage in anticipation of long-term gains. This investor behavior decreases the liquidity in the market even further, creating a very bullish signal for the digital asset.


Comparing BTC price development with JKL performance over the previous two cycles, JKL strategy has managed to capture BTC price action, while averting speculative upwards and downwards rallies. At the terminal point of both cycles, where BTC market price historically converged with its SF ‘fair’ value, JKL Strategy outperformed returns of the underlying digital asset. Historically, our fund’s strategy has proven to be a reflection of Bitcoin’s halving cycles and growing scarcity, steadily appreciating in value while averting potential risks.

Figure 6. Performance of a $100 investment over the halving cycles

4/2013–09/2018 — backtested data




This material is strictly confidential and is intended for use solely by professional investors (as defined in the Cayman Islands Monetary Authority from time to time). It should not be reproduced, redistributed, passed on to any other person or published, in whole or in part, for any purpose without the written consent of JKL Digital Capital Limited (‘JKL’) and must be returned on request to JKL. Although information contained in this material has been compiled from sources believed to be reliable, JKL does not represent or warrant the accuracy, completeness or reliability of the information contained in this material.

The contents of this material have not been reviewed by any regulatory authorities. You are advised to exercise caution in relation to the contents of this material. If you have any doubt about any of the contents of this material, you should obtain independent professional advice. Neither JKL nor any of its affiliates, nor any of its or their respective directors, officers, employees and representatives will accept any responsibility or liability whatsoever for any direct, indirect or consequential loss arising from the use of or the reliance upon any information contained in this material. This material does not constitute an offer or an invitation to subscribe for or purchase any financial product. It is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation to purchase any financial product.

JKL, its affiliates and/or any or its or their respective officers, directors, employees and representatives may from time to time have a material interest in the product(s) described in this material or in any investment related to the product(s), for their proprietary accounts and/or for accounts under their management, and/or for clients, which may result in a positive or negative influence on the value of the value of the product(s).



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