In the ever-evolving landscape of cryptocurrencies, few events hold as much influence and anticipation as Bitcoin‘s (CRYPTO: BTC) halving. On Friday, April 19, the world’s original cryptocurrency underwent its fourth halving, setting the stage for a potential price surge.
While past performance doesn’t guarantee future results, with a deeper exploration of the halving, it becomes clear that Bitcoin’s price increasing is as close to a safe bet as you can get in the world of investing, especially in cryptocurrencies. Here’s just how far it could go as it enters its new era.
What the halving is and why it’s important
Before getting into some speculation, it’s crucial to understand just what the halving is and why it is so important. Programmed into Bitcoin’s code, this phenomenon occurs roughly every four years, or every 210,000 blocks added to the blockchain, and reduces the block reward awarded to miners in half.
As the primary means for new Bitcoins to enter circulation, the reduction to miner rewards effectively slashes Bitcoin’s inflation rate. Now that the fourth halving has passed, Bitcoin’s inflation rate sits at a measly 0.85%, half of its previous 1.7%. Since Bitcoin’s code is open source and we can peer into its inner workings, we know that this process will continue until 2140, when the last Bitcoin is scheduled to be mined, cementing its status as a deflationary asset.
Given the cyclical nature of the halving, there have been notable trends found arising between each one, namely price appreciation. By altering the production rate, the dynamics behind Bitcoin’s supply and demand are altered. As a result, even if demand remains constant (even though it has historically been increasing), the supply cut exerts upward pressure on its price.
Evaluating historical trends
It isn’t hard to see how the halving impacts Bitcoin’s price. However, by taking things a step further, we can gain a better understanding on what to expect from Bitcoin in the coming months and years.
On average, Bitcoin increases roughly 127%. Measuring from its price at the beginning of 2024, that would put its price by year end right at $100,000.
Yet this might only be scratching the surface for what’s to come. Unlike past halvings, this halving will be the first time that there are fewer Bitcoins available on exchanges than at the time of the previous one. When the third halving arrived in May 2020, there were 3.2 million coins on exchanges. This was more than at the time of the second halving in July 2016, when there were roughly 1 million coins on exchanges.
However, since the May 2020 halving, the number of coins have dried up, with just 2.2 million on exchanges today. This supply shock could make this halving particularly explosive and is likely the culprit behind Bitcoin hitting an all-time high before the halving, something it had never done before.
Future outlook and potential growth
While a $100,000 price target for Bitcoin would be a considerable jump from today’s prices, there are compelling reasons for investors to be focused on beyond this year. Historical data indicates that in the years following a halving, Bitcoin has experienced staggering price appreciation of around 400%. If this trend were to continue and our projected $100,000 price target hits in 2024, Bitcoin could see its price reach a staggering $500,000 in 2025.
This may come off as sensational, but here’s why it could happen. With the introduction of the newly approved spot Bitcoin ETFs in January, this will be the first halving where it isn’t just retail investors like you and me buying Bitcoins. Now the institutions have arrived, and they’ve brought their deep reserves of capital with them.
So far, the ETFs have been a hit, and hint that added demand from previously sidelined buyers could drive Bitcoin to previously unimaginable heights. Consider that at one point, the firms sponsoring these ETFs were buying more than 10 times Bitcoin’s daily production rate (roughly 900 Bitcoins).
While the rate of buying has cooled over the last month, if demand picks up to those record levels, that means the ETFs would be buying at 20 times Bitcoin’s daily production rate now that the halving has passed. Combine that with an existing supply shock, and Bitcoin’s price could be in for a wild ride.
Only time will tell what happens in this halving cycle. But what is more certain is that in roughly another four years, Bitcoin will undergo another halving. For investors with a long enough time frame, the more halvings you are able to hold through, the more likely your holdings will grow as each halving compounds on the previous.
See you in 2028.
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RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
Bitcoin Could Hit $100,000 if Past Halving Trends Play Out was originally published by The Motley Fool