We can agree that the last year has been rough on our beloved BTC. It peaked early November ‘21 above $67K, six months later we are dipping below $29K.
The market movement have been influenced by many factors, but ultimately it does move surprisingly consistent with trends from the past. And although nobody knows what the future hodls, we should take a look at the lessons learned. I’m talking specifically about the effects of Bitcoin halving.
A Bitcoin halving is when the payout for mining a new block is halved. This happens after every 210,000 blocks (approximately four years).
Back in 2009, the reward for mining the first blocks were 50 BTC each. When the first halving happened on Nov 28th 2012, block mining rewards dropped to 25 BTC. On Jul 9th 2016, the next halving took place, followed by the most recent one on May 11th 2020. The mining reward currently stands at 6.25 BTC per block. The next halving will occur in 2024, expected to be March 2nd.
The Halving Effect
The halving obviously results in a reduction of the miners’ reward for the creation of new blocks. Meanwhile, the halving reduces the new coin creation rate and thereby lowering the supply rate. Yet, halvings usually bring a lot of press and new buyers, which increases demand. Just like with other assets with finite or low supplies, such as precious metals, a lower supply and higher demand pushes prices up.
As a result, Bitcoin halvings of the past have resulted in massive price surges. The 2012 halving saw Bitcoins price climb from $12 to $1213 within one year. At the time of the second halving in 2016 BTC price was at $647, and by the end of 2017 it got to $19.800, before it fell back to $3,276 by the end of 2018, still 506% above its latest halving price. During Bitcoin’s most recent halving in May 2020, the price was $8,787. By Nov 2021 the price hit over $68,000, from which we have now fallen back to $29,000, which is still up 330% from the halving price.
So if we look back, we see how the price of Bitcoin goes up dramatically after the halving, but there follows an extended bear market before going back up again at the next halving. Guess where we are now?
Nobody knows, and this is not financial advice. But, if the past trends continue, we have seen the peak of the 2020 halving and continue the bear market until the next 2024 halving. The question remains if the 2024 halving will lead to a massive runup after it comes, but if it does that means we can expect the price peak towards the end of 2025.
Only time will tell what will happen. But if you are planning on hodling, you better set your target to the end of 2025. Stick to your DCA plan, and accumulate as you go. Your future self will thank you.