For the Bitcoin (BTC -0.38%) novice, the beatdown that has been 2022 serves as a humbling reminder that the digital coin’s price can fall just as fast as it rose.
But what if I told you Bitcoin is doing exactly what it has done in the past? Essentially, we are right on schedule. Even better, what if I told you that the next few months might be one of the best times to buy Bitcoin? To give you a better understanding of why I believe this, we need to examine one of Bitcoin’s unique characteristics that sets it apart from most other cryptocurrencies.
Roughly every four years, or after 210,000 blocks have been mined, the Bitcoin block reward is cut in half in an event known as halving. When Bitcoin miners successfully mine a block, they are rewarded with a specified amount of Bitcoin. This is the primary mechanism for new bitcoins to be created but the process also slows the growth in supply of new coins.
Halving trends
Bitcoin miners now are rewarded with 6.125 bitcoins for creating a new block. Before the last halving in May 2020, the reward was 12.5 bitcoins. And 210,000 blocks before that, it was 25; and another 210,000 blocks before that, the reward was a whopping 50 bitcoins.
Aside from other characteristics like its elite level of security and decentralization, halvings are one of the most essential traits of Bitcoin.
Of more interest to investors are the price dynamics during halvings and during the interim. When we chart Bitcoin’s price and mark the dates of the halvings on the same graph, a few things become clear.
Based on data from the last four halvings, Bitcoin’s price typically bottoms out, on average, when the next halving is roughly 1 1/2 years out. Since we know that Bitcoin goes through a halving every 210,000 blocks, with a little math, we know that the next Bitcoin halving should take place sometime around May 2024 — or 1 1/2 years from now.
These are just averages, and don’t mean the future will unfold exactly as the past. But the data suggest that the current bear market Bitcoin finds itself in is nothing out of the ordinary. Drops of 70%, 80%, or even 90% are par for the course during crypto winters.
If we look a little closer at the price action of Bitcoin around halvings, another phenomenon appears. At roughly one and a half years after a halving, Bitcoin tends to notch a new all-time high.
What the numbers say
Some numbers might be helpful so that you don’t have to just take my word. Let’s look back at the first halving, which occurred in late November 2012. A little over a year before the halving, Bitcoin hit a bottom after falling to just $2.50, a decline of more than 90% from its all-time high of about $30 in June 2011. Almost exactly a year after the halving, it hit a new all-time high, reaching more than $1,100 in November 2013.
From that high, Bitcoin slid all the way to only $177 by mid-January 2015, or roughly 1 1/2 years before the next halving, which happened in July 2016. Almost like clockwork, about a year and a half later, Bitcoin hit a new all-time high just shy of $20,000 in December 2017.
After the $20,000 mark, Bitcoin tumbled for the greater part of 2018. The worst of it came in December 2018, when Bitcoin fell to only $3,200. Again, this bottom was about 18 months out from the next halving, which was slated for May 2020. And like clockwork, a new all-time high (also the most recent) was attained when the crypto reached an astounding $69,000 in November 2021 — 1 1/2 years after the last halving.
Today we are in a position much like that of past halving cycles. It has been almost a year and a half since the most recent all-time high, and Bitcoin has fallen nearly 70%, well within the range of past trends. To the delight of investors, we are also roughly 1 1/2 years away from the next halving scheduled for May 2024.
Historically, around this time happens to be one of the most opportunistic periods to buy Bitcoin, where downside risk is minimized and upside is maximized. Past data show that investors who buy today are positioned to reap the greatest rewards as long as they hold for a year and a half after the May 2024 halving.
That would mean you need to hold until at least around the end of 2025. That can seem like a long way out, but investing with this long-term view is one of the most important ways to ensure your portfolio is set up for success.
Will Bitcoin follow the same course as years past? We can’t say for sure, but until proved wrong, I will remain a believer in the data.
