In the ever-evolving world of cryptocurrencies, few events garner as much attention and potential impact as Bitcoin’s halving. On April 19, Bitcoin underwent its fourth halving, marking a significant moment in its journey.
While past performance is not always indicative of future results, a closer look at the halving reveals Bitcoin’s resilience and its potential for substantial price appreciation.
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What is the halving?
Approximately every four years, or every 210,000 blocks added to the blockchain, the halving reduces the rewards awarded to miners for solving blocks, a process known as proof of work.
As this is the primary method for new Bitcoins to enter circulation, the reduction in miner rewards effectively lowers Bitcoin’s inflation rate. With the fourth halving now completed, Bitcoin’s inflation rate stands at a modest 0.85%, making it less inflationary than gold. This reduction in inflation will continue until 2140, when the last Bitcoin is scheduled to be mined, and it underlines its strong monetary policy, which emphasizes scarcity and finality.
The effects of the halving
Since halvings reduce Bitcoin’s inflation rate, they effectively alter the dynamics of its supply and demand. Consequently, even if demand remains constant, the price must increase to offset the reduction in supply. Essentially, halvings exert upward pressure on Bitcoin’s price.
We can observe this trend when analyzing Bitcoin’s past performance following a halving. In the years that a halving occurs, Bitcoin typically sees an average return of around 125%. If this trend continues, it would place its price at $100,000 when measured from the beginning of 2024.
Even more promising, as the impact of the halving solidifies, it is in the years following a halving that the best returns typically occur. During those years, Bitcoin has grown by an average of nearly 400%. If this halving follows a similar pattern, Bitcoin could see its price reach around $500,000 in 2025.
Further examination of the current landscape
While the halving alone can have significant effects on Bitcoin’s price, there are several other developments that could make this halving unlike any other. A closer look at the current landscape should help clarify that these potential price targets are not as far-fetched as they may seem.
Halving is Unique
First, it’s important to note that while the halving affects Bitcoin’s production, this halving is unique in that there was already a supply shock. For the first time ever, there were fewer coins available on exchanges during this halving than in the previous one. Since peaking in May 2020, the total number of coins available on exchanges has plummeted, currently sitting at roughly 2.2 million, the lowest levels since 2018.
Spot Bitcoin ETFs
Additionally, we have seen the introduction of spot Bitcoin ETFs. In January, the Securities and Exchange Commission (SEC) approved 11 spot Bitcoin ETFs, opening the doors for a new set of buyers to enter the Bitcoin market. For those who are new to or not well-versed in the technicalities of cryptocurrency exchanges, these ETFs offer a familiar and regulated way to invest in Bitcoin through traditional brokerages. This means that investors can now include Bitcoin in their 401(k) plans or IRAs, making it more accessible to a wider range of people. exposure to their 401(k) plans or IRAs, effectively lowering the barriers to entry for a broader range of investors.
While it is still early, we can already see the popularity of these ETFs. To meet the demand, in mid-February, the 11 ETFs collectively purchased at a rate 10 times greater than Bitcoin’s daily production (roughly 900 Bitcoins). Although the initial buying frenzy has subsided, if buying were to reach these levels again, the ETFs would be buying at 20 times the daily production rate now that the halving has passed, placing even greater pressure on Bitcoin’s price.
Only time will tell how explosive this halving cycle will be for Bitcoin. However, with a brief examination of the implications of each halving, as well as other contributing factors like an existing supply shock and the introduction of ETFs, there is reason for considerable optimism. Even with Bitcoin’s price hovering near $66,000 today, as the effects of the halving materialize over the coming months, I am still bullish on Bitcoin and anticipate significant growth.
