Bitcoin broke out of a six-month bearish channel with a solid rally last week.
The breakout has happened four months ahead of the reward halving, which will reduce rewards per block mined from 12.5 to 6.25 bitcoins.
In the past, the premiere digital currency has rallied sharply on the back of reward halving. For instance, following the second reward halving conducted in July 2016, bitcoin rallied sharply from lows near $530 and went on to hit a record high of $20,000 by December 2017.
This time, however, the price may not go up after halving as for the first time, there is a robust derivatives (futures, options) market for bitcoin. Most firms looking to speculate on bitcoin will trade a derivative, not the underlying, as tweeted by CoinShares Chief Strategist Meltem Demirors in December.
1/ there is a very real possibility the price of bitcoin does not go up after halving.
for the first time, there is a robust derivatives (futures, options) market for bitcoin. most firms looking to speculate on bitcoin will trade a derivative, not the underlying.
— Meltem Demirors (@Melt_Dem) December 24, 2019
The availability of derivatives means pessimists and traders who believe halving is priced in can express their view by shorting futures.
There was no market for pessimistic and investors could only really go fundamentally long. Essentially. that was a “believer’s rally”.