In the ever-evolving world of cryptocurrency, few events hold as much weight and anticipation as Bitcoin‘s (CRYPTO: BTC) halving. Programmed into the Bitcoin protocol, this event occurs roughly every four years and is a pivotal moment in the lifecycle of the most valuable cryptocurrency.
As we approach Bitcoin’s fourth halving, slated for Friday, April 19, at 9 p.m. ET, it’s crucial to understand its significance, its implications for investors, and why it’s still worth buying today.
Image source: Getty Images.
To understand the halving process is to understand Bitcoin’s long-term potential. At its core, the halving is a mechanism designed to control the issuance rate of new Bitcoins. Every 210,000 blocks, or approximately every four years, the rate at which new Bitcoins are created is slashed in half. This reduction in the issuance of new coins serves a critical role in maintaining the scarcity of Bitcoin. With a predetermined maximum supply of 21 million coins, the halving ensures that Bitcoin remains a finite and deflationary asset until 2140 when the last Bitcoin is scheduled to be mined.
The impact of the halving cannot be overstated. Currently, Bitcoin’s inflation rate sits at approximately 1.5%. However, after the upcoming halving, this rate will drop below 1%, effectively making Bitcoin scarcer than gold. This reduction in the issuance of new Bitcoins has profound implications for the asset’s price dynamics. Even if demand were to remain constant, the decrease in supply inevitably exerts upward pressure on the price.
Even though the halving underscores Bitcoin’s long-term potential, it has proven to be impactful in the short term as well. On average, in the years that halving occurs, Bitcoin jumps roughly 125%. If it follows this pattern, that would put Bitcoin’s price at roughly $100,000 by year-end, making an investment at today’s price of roughly $65,000 still a lucrative opportunity.
However, to truly benefit from the halving’s effects, investors must maintain a longer time frame. Data shows that holding Bitcoin for at least one halving almost guarantees your portfolio will grow.
Prominent on-chain analyst Willy Woo found that even if investors purchased Bitcoin at the peak of a bull market, they would eventually see an annualized return of 30% so long as they hold for at least four years. Reasons behind this are likely varied, but the most obvious is the impact of the halving. By holding through at least one halving, your Bitcoin benefits from the adjustment to its supply and demand dynamics.
For those considering #Bitcoin. Remember to hold for 4 years. It’s never returned below 30% annualised for a 4 year investment, no matter how badly timed…
BTC: 30-60%, 75% drawdowns
SP500: 10%, 35% drawdowns
Real Estate: 10%, 30%+ drawdowns
VC Funds: 15%-27%, 10 year lock up pic.twitter.com/UjxCQAHM5l
— Willy Woo (@woonomic) February 22, 2024
Even though Bitcoin boasts a proven track record over the course of a year and even four years, the true potential comes when buying and holding through multiple halvings. In doing so, the reductions to its inflation rate compound over time, leading to exponential increases in scarcity and, consequently, price appreciation. Add in the fact that demand is on an upward trajectory, and suddenly, predictions of a $1 million Bitcoin or greater become a little less sensational and all the more plausible.
While some analysts believe that Bitcoin’s upcoming halving is already priced in and that the cryptocurrency could see possible declines in the short term, any potential correction will likely prove to be just a minor speed bump on Bitcoin’s journey of price appreciation. That’s why I am still buying Bitcoin even today.
Investors who understand the phenomenon of the halving are better positioned to grasp Bitcoin’s long-term appeal and weather those short-term fluctuations with confidence. With each halving that passes, Bitcoin becomes increasingly scarce and all the more valuable, paving the way for the world’s original cryptocurrency to become the world’s premier asset. On the brink of Bitcoin’s fourth halving, the stage is set for another chapter in its remarkable journey.
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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.
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