If history is any guide, the April 19 halving event could lead to a new bull market cycle for Bitcoin.
On the night of April 19th, I was looking forward to it. Bitcoin (BTC 1.50%) The halving has finally happened. There is a reason why crypto investors around the world celebrated. There have been three halving events in the past, each resulting in a new bull market cycle for Bitcoin.
So, will the price of Bitcoin rise again this year due to the halving? I think so, and here's why.
Bitcoin has its own monetary policy
Many investors may not realize this, but Bitcoin was actually created as a reaction to the 2008 financial crisis. Bitcoin's pseudonymous creator, Satoshi Nakamoto, blamed irresponsible fiscal and monetary policies for the crisis and sought to create a new type of digital currency. It is an asset that becomes “sound money.”
With that in mind, Nakamoto built a unique halving mechanism into the original Bitcoin algorithm. A halving occurs after 210,000 blocks are added to the Bitcoin blockchain, which occurs approximately once every four years. As soon as the 210,000th block is added, the mining reward for adding a new block is reduced by half.
Image source: Getty Images.
Another way to think about this is that Bitcoin is the only asset in the world that has its own monetary policy. The halving mechanism carefully controls how much new Bitcoin can be created at any time. There is also a strict limit on the amount of Bitcoin that can ever be created: 21 million coins.
All of this is done to make Bitcoin as inflation-resistant as possible, a feat that even the most talented central bankers have not been able to fully master.according to coinbase global (NASDAQ:Coin), Bitcoin is now a “programmatically defensible asset.” In other words, Bitcoin is literally programmed to resist inflation. So if you're looking for a long-term store of value, it's Bitcoin.
Bitcoin skyrocketed during past halvings
The second reason I buy Bitcoin is that it is very likely that the value of Bitcoin will skyrocket after April 19th. There have been three Bitcoin halving cycles so far, and each cycle saw Bitcoin reach new all-time highs. . Some of the results were truly amazing. For example, during the last halving, Bitcoin skyrocketed from $10,000 in May 2020 to $69,000 in November 2021.
Of course, past performance is no guarantee of future performance, so Bitcoin's value may not rise as much this time. Coinbase recently modeled the results of the past three halving cycles and found that the effectiveness of each halving appears to decrease over time. This is not surprising given that the number of Bitcoins currently in circulation is 19.7 million, moving closer and closer to the hard cap of 21 million.
However, this time around Bitcoin's fourth halving, there is one big change: the recently introduced new Spot Bitcoin ETF. This introduces a whole new source of demand for Bitcoin, and any selling pressure after the halving is likely to support Bitcoin prices. In fact, some crypto traders believe that we are already facing a potential “supply squeeze” in terms of available Bitcoin, and that the halving could cause the price of Bitcoin to drop, simply based on supply and demand. I think it has the potential to rise.
Considering all of this, I believe we will see price movements similar to those seen in past Bitcoin halving cycles. According to Coinbase, Bitcoin rose 923% in the six months after the first halving, 37% in the six months after the second halving, and 82% in the six months after the third halving . Therefore, it is certainly possible that Bitcoin could cross the $100,000 level this year. Considering Bitcoin's current price is $65,000, that would mean an increase of about 50%.
How high will Bitcoin rise?
As Bitcoin becomes more and more mainstream, it should start to behave more and more like a traditional financial asset. This means lower volatility, higher correlation with stocks and bonds, and greater dependence of prices on the overall macroeconomic environment. As a result, we may not see the explosive gains that Bitcoin has seen in previous halving cycles.
Bitcoin may no longer be able to increase in value 100x or 1,000x as easily as it once did, but it can increase its price 10x over the next 10 years. And that may be a conservative estimate. Ark Invest's Cathie Wood currently believes Bitcoin will breach the $1 million price level by 2030. So if you're thinking of investing in Bitcoin, buckle up and enjoy the ride.
