On the evening of April 19th, the eagerly awaited event took place Bitcoin (CRYPTO:BTC) The halving finally happened. Crypto investors around the world celebrated, and with good reason. There have been three halving events so far, and each of them has resulted in a new bull market cycle for Bitcoin.
So will the halving push the Bitcoin price higher again this year? I think so, and here’s why.
Bitcoin has its own monetary policy
Many investors may not be aware of this, but Bitcoin was actually created as a backlash to the 2008 financial crisis. Satoshi Nakamoto, the pseudonymous creator of Bitcoin, blamed the crisis on irresponsible fiscal and monetary policies and sought to create a new type of digital asset that would be “sound money.”
With this in mind, Nakamoto built the unique halving mechanism into the original Bitcoin algorithm. A halving occurs after 210,000 blocks are added to the Bitcoin blockchain, approximately every four years. Once the 210,000th block is added, the mining reward for adding new blocks will be halved.
Another way to think about it 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 given time. It also sets a hard cap on how much Bitcoin can ever be created, namely 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 never quite master. Accordingly Coinbase Global (NASDAQ:COIN), Bitcoin is now a “programmatically disinflationary asset.” In other words, Bitcoin is literally programmed to resist inflation. So if you are looking for a long-term store of value, Bitcoin is the right choice.
Bitcoin has skyrocketed in recent halving cycles
The second reason I buy Bitcoin is because there is a very high chance that the value of Bitcoin will increase sharply after April 19th. There have already been three Bitcoin halving cycles, and in each of these cycles Bitcoin has risen to a new all-time high. Some of the wins were truly amazing. For example, in the previous halving cycle, Bitcoin rose from $10,000 in May 2020 to $69,000 in November 2021.
Of course, past performance is no guarantee of future performance, so there is a possibility that Bitcoin’s value may not increase as much this time around. Coinbase recently modeled the results of the three previous halving cycles and found that the effect of each halving appears to diminish over time. This makes sense considering we are getting closer and closer to the 21 million hard cap and there are currently 19.7 million Bitcoins in circulation.
But this time there is something completely different with the fourth Bitcoin halving and that is the recent launch of the new spot Bitcoin ETFs. This creates an entirely new source of Bitcoin demand and will likely help support Bitcoin’s price if there is selling pressure following the halving. In fact, some crypto traders believe that we are already facing a potential “supply squeeze” in terms of available Bitcoins and the halving could simply drive up the price of Bitcoin due to supply and demand.
All of this leads me to believe that we will see similar price dynamics as we have 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. So it’s certainly within the realm of possibility that Bitcoin will break $100,000 at some point this year. Given Bitcoin’s current price of $65,000, this would represent a rally of around 50%.
How much higher can Bitcoin go?
As Bitcoin becomes more mainstream, it is likely to behave more and more like a traditional financial asset. This means less volatility, more correlation with stocks and bonds, and greater price dependence on the overall macroeconomic environment. As a result, there could be less explosive upside than we are used to seeing in Bitcoin from previous halving cycles.
While Bitcoin’s value may no longer be able to rise 100 or 1,000 times as easily as it once did, the price should still be able to rise 10 times over the next decade. And that might be a conservative estimate. Ark Invest’s Cathie Wood now expects Bitcoin to surpass the $1 million price level sometime before 2030. So if you are thinking about investing in Bitcoin, buckle up and enjoy the ride.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
Bitcoin just halved its mining reward. “Here’s Why I’m Buying Now” was originally published by The Motley Fool