The Bitcoin halving is a process that occurs every four years, and involves cutting the number of Bitcoins that miners receive as rewards in half. The next Bitcoin halving is expected to occur in April or May 2024, roughly a year from now.
While the event may seem insignificant, it has historically been followed by significant price increases in Bitcoin, and this presents an excellent opportunity for investors to buy Bitcoin today and potentially benefit from the price increase that follows.
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Why the halving matters
The halving process is a critical part of what makes Bitcoin so unique and is used to manage the supply of coins entering circulation. Hardwired into its code, roughly every four years (or after 210,000 blocks have been added to the blockchain) this halving event takes place and reduces the number of Bitcoins awarded to miners, which is the primary way new coins are created.
Essentially, the halving process creates scarcity of Bitcoin, which in turn drives up the price of the cryptocurrency. As the supply of Bitcoin becomes more limited, demand usually goes up, leading to an increase in price. This is very different from the process of splitting a stock, which simply divides the same asset into a larger number of smaller slices. Halving is a fundamental change to the relative value of each new Bitcoin in a strictly controlled total market.
Initially, the mining reward was a whopping 50 Bitcoins. But since then, there have been two more halvings and today the mining reward sits at 6.25 Bitcoins. However, this number is set to change once again in about a year when Bitcoin undergoes its next halving — and that’s the main reason I won’t stop buying Bitcoin today.
What the numbers say
By looking at Bitcoin’s historical price roughly a year before and after each halving event, you can see a pattern of significant price increases.
While buying Bitcoin at the time of each halving would provide considerable returns, the most lucrative returns are made when buying in preparation for the halving, especially when it’s a year away.
In the time between a year before and after the first halving in November 2012, it rose more than 43,000% when it climbed from roughly $2.50 to nearly $1,100. The next halving was in July 2016 and, while not as significant an increase, it was still extremely lucrative. As a result of this halving, Bitcoin increased from $280 to around $2,225, a 640% increase. And finally, the most recent halving. A year before May 2020, Bitcoin’s price was a measly $6,975. But a year after the halving, it ascended 609% to reach a price of $49,500.
While hindsight is always 20/20, the numbers don’t lie. A year before an upcoming halving has proven to be a great time to buy Bitcoin while its price remains discounted. And it seems like this remains the case today. This is a planned event that adds a straightforward amount of value to existing Bitcoins, so I’m not trying to time an unpredictable market. Of course, the price trend could take different turns this time as investors adapt to the well-documented halving effect, but the larger point remains the same: Bitcoin should become more valuable over time due to its limited supply.
The game plan
Despite its strong rally to start off 2023, rising more than 70%, Bitcoin’s price is still a far cry from its all-time high of more than $68,000. While the first halving was likely an outlier due to its massive price appreciation (43,000%), if Bitcoin were to make a similar return to the last two halvings of around 600%, that would see it reach a price tag of more than $200,000.
This may sound like trying to time the market, but in reality, it’s quite the opposite. While buying a year before the halving and selling a year after might seem like a foolproof way to generate some returns, there are potential gains missed out.
In reality, the true goal is to buy and hold for multiple halving cycles. If past trends continue, then the longer you hold on to those precious Bitcoins, the more likely they are to appreciate at a rate few other assets can even come close to. For that reason alone, Bitcoin is worth heavy consideration with its heavily discounted price and the next halving set for next year.
