Cryptocurrencies have proven to be volatile, but the opposite is true Bitcoin (CRYPTO:BTC) was pointless in the long run. The cryptocurrency is near all-time highs, supporting the long-term trend of rewarding buy-and-hold investors despite the bumpy performance.
What does Bitcoin have in store for investors in the next five years? It’s an exciting time for cryptocurrency as the halving is just around the corner. What does that mean?
Here’s what you need to know about the upcoming Bitcoin event and how it could drive the price of the cryptocurrency higher over the next five years.
What is Halving?
The next Bitcoin halving will take place in the coming days. The cryptocurrency is based on a blockchain, a decentralized digital ledger. Computers on the network verify and process the blockchain’s transactions in exchange for Bitcoin as payment.
This practice is commonly referred to as mining. Groups of transactions are called blocks. Halving occurs every 210,000 blocks, halving the amount of Bitcoin awarded for mining a block.
Halving limits the amount of new Bitcoins that come into circulation. The hope is that Bitcoin’s long-term adoption will increase demand while supply increases at an ever-slower rate. This supply and demand dynamic aims to support a higher Bitcoin price.
Last year, investors flocked to this cryptocurrency in the run-up to the halving, perhaps due to the expected decline in mining rewards. In other words, you buy Bitcoin before it becomes more scarce.
Not once, but twice
A halving is rare; It takes about four years to mine 210,000 blocks. The original reward for mining a block was 50 Bitcoins. Previous halvings have reduced mining rewards to 25, then to 12.5, and then in 2020 to 6.25. The upcoming halving will reduce it by half again, to 3,125 Bitcoin per block.
Long-term investors are likely to see two halvings in the next five years. The next one will take place sometime in 2028 and will reduce mining rewards to 1.5625 Bitcoin. Think of it this way: Bitcoin mining rewards in the next five years will be a quarter of what they are today.
This is optimistic news for anyone who believes Bitcoin adoption will continue to grow. Here too, higher demand could lead to higher prices with a much slower growing supply.
The investor’s game plan
There are signs of wider adoption of cryptocurrencies. According to a Security.org survey, 40% of U.S. adults own crypto, compared to 30% a year ago. And of those who already own at least some crypto, 63% are hoping to get even more.
This bodes well for Bitcoin, the flagship cryptocurrency token. If most consumers agree, businesses could introduce crypto into their payments. Institutions have already launched Bitcoin investment funds due to consumer demand.
The investment plan remains largely unchanged here. Bitcoin has shown that it can be volatile. So far in its history it has continued to rise over time.
Does this guarantee that there will be higher prices in the future? Of course not, but like the stock market, investors can use history to educate themselves about future possibilities. It’s a simple long-term investment thesis for Bitcoin assuming people and businesses will use it more in the future. What it boils down to is that demand is unlimited and supply is limited.
This means using volatility to your advantage, buying on dips and holding. The next five years could be exciting as Bitcoin supply growth slows to a minimum.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
Where will Bitcoin be in 5 years? was originally published by The Motley Fool