Bitcoin (CRYPTO: BTC), the world’s first and most well-known cryptocurrency, has experienced significant milestones and events throughout its history. Among these, the scheduled halving events stand out as pivotal moments that profoundly impacted the cryptocurrency’s supply and demand dynamics.
Let’s explore the recent Bitcoin halving and how it compares to previous ones. There are similarities and differences across the halving cycles, so let’s see what it all means for investors.
Similarities to past halvings
The similarities between the recent Bitcoin halving and its predecessors are relatively straightforward. Like previous halvings, this event cut the reward for Bitcoin mining in half, effectively halving Bitcoin’s inflation rate and altering its supply and demand dynamics.
However, despite the clear effects the halving has on Bitcoin’s fundamentals, its impact on price is rarely immediate. As with past halvings, Bitcoin is experiencing sideways trading or even slight price declines in the months following the event.
Since the recent halving, Bitcoin’s price has exhibited similar jostling price action. It hovered around $63,000 at the time of the halving, experienced a minor sell-off, and subsequently regained some of those losses. This pattern of post-halving price volatility is consistent with historical trends, with such fluctuations lasting for anywhere between two and four months.
Differences in this halving
While there are several similarities to past halvings, two glaring differences set the recent halving apart. First, Bitcoin reached an all-time high before the halving, a scenario unprecedented in previous halvings. The approval of spot Bitcoin ETFs in January contributed to significant buying activity. At one point, the Bitcoin buying volume was 10 times the daily issuance rate, driving Bitcoin’s price to over $73,000 in late March.
In part, the subsequent price decline can be attributed to profit-taking following the hype surrounding the ETF approval and the halving event. On-chain data shows that long-term Bitcoin holders engaged in the largest profit realization since early 2021, subsequently causing its price to slip. That’s a side effect of converting lots of paper profits into actual cash gains.
Second, and arguably most important, is the significant decline in Bitcoin’s inflation rate, which now stands at an unprecedented low of 0.85%. At this level, Bitcoin’s inflation rate has now officially ducked below that of what many believe is the superior hedge against inflation: gold.
The importance of this achievement cannot be overstated. It solidifies Bitcoin’s position as a digital gold, offering superior protection against the erosive effects of inflation. Inflation is eroding the purchasing power of traditional fiat currencies and even physical assets like gold, which are inflated from mining activities. By contrast, Bitcoin’s ability to maintain a lower inflation rate underscores its resilience and attractiveness as a long-term store of wealth. This historic milestone and future halvings will further cement its status as a premier asset in the global financial landscape.
Long-term optimism amid short-term volatility
Investors should temper their expectations for short-term gains in the wake of the recent halving, as Bitcoin’s price may continue to experience volatility in the coming months. However, there are solid reasons for serious long-term optimism.
Historically, in the year following a halving, Bitcoin has risen by more than 400% and reached new all-time highs. While Bitcoin has already achieved a new all-time high, the effects of this halving, combined with increased demand from recently approved spot Bitcoin ETFs, could exert significant pressure on its supply in the long term.
While the exact trajectory of Bitcoin’s price remains uncertain, the factors are in place for this halving to treat Bitcoin as favorably as, if not better than, past halvings. In the meantime, investors should exercise patience and view any short-term dips as opportunities to allocate some funds to this transformative digital asset. Rest assured, just as the days of a sub $10,000 Bitcoin are long gone, a sub $100,000 Bitcoin should soon be a distant memory.
Should you invest $1,000 in Bitcoin right now?
Before you buy stock in Bitcoin, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $581,764!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of May 13, 2024
RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
Here’s How the Bitcoin Halving Is Playing Out was originally published by The Motley Fool