We all know that every 210,000 Bitcoin blocks created, or roughly every 4 years, the Bitcoin protocol programmatically undergoes a "halving," in which the block reward to miners every 10 minutes halves. In 2012, it halved from 50 Bitcoin to 25, in 2016 from 25 to 12.5. A few months ago in May 2020, Bitcoin halved again, from 12.5 to 6.25 new Bitcoin created every 10 minutes. In order for miners to sustain a profitable mining operation (cost of electricity, maintaining/upgrading hardware, rent, etc.), they must sell most, if not all of their mined Bitcoin. However, if 50% less Bitcoin are now being mined, that means 50% less Bitcoin are being perpetually sold. So, there's a diminishing supply and less selling in the market indefinitely.
The Bitcoin market bottomed on average 459 before the first two halvings, this year being a little longer around 565 days. In the first 2 halving events, Bitcoin's price exploded. This is likely attributed to, if you analyze Bitcoin's Stock To Flow ratio, in the first halving, there were only 10 million Bitcoin outstanding at the time, so going from 50 to 25 BTC effectively cut the supply by 1.6 million BTC, or 15%, over the next 4 years, so the market exploded up. After the second halving in 2016, there were then 15 million BTC outstanding and the block reward halved from only 25 to 12.5 which impacted outstanding BTC by 5%, or one third of the previous halving's impact. This year we had 18 million outstanding BTC at the May halving which had a 2.2% impact on supply of BTC.
Interestingly though, those ratios actually match the ratios of the BTC post-halving rallies! The first rally was 3.2 times bigger than the second rally. If those relationships hold, this upcoming rally in as early as 2021 would be 40% as big as in 2016, which would equate to ~$115,000 Bitcoin.
