In three previous halving cycles, Bitcoin has exploded in price. Will this time be different?
For the first three months of 2024, the primary investment thesis for Bitcoin (BTC -2.81%) has been the recent introduction of the new spot Bitcoin exchange-traded funds (ETFs). And indeed, with nearly $1 billion flowing into them on a daily basis, these new ETFs have played a prominent role in pushing up the price of the cryptocurrency to new all-time highs.
But there’s another catalyst on the horizon that could play an equally important role in Bitcoin’s future price trajectory: the upcoming halving in mid-April. On one hand, the event could see the crypto rocket even higher, as it has after previous halvings. On the other hand, the event could overpromise and underdeliver, thereby dampening the current Bitcoin euphoria. Let’s look at both scenarios.
Why the halving could send Bitcoin higher
If you examine the track record of Bitcoin, it’s hard not to conclude that the upcoming halving will produce some truly spectacular gains. In three previous halving cycles (in 2012, 2016, and 2020), it has skyrocketed to new all-time highs.
The classic pattern is for Bitcoin to climb in value ahead of the halving, and then really take off after it. After the last halving in May 2020, when it was still trading for less than $10,000, the digital currency eventually went on to hit a new high of $69,000.
So, is history about to repeat itself? Certainly, a lot of investors seem to think so. Many believe Bitcoin will hit $100,000 by the end of this year, and perhaps even soar to $150,000 sometime in 2025.
In fact, Grayscale Investments thinks this halving cycle will be the best one ever, thanks to the impact of the new Bitcoin ETFs. There’s simply so much new money flooding into Bitcoin right now, that any selling pressure that might occur after the halving will be quickly absorbed by the ETFs.
And indeed, the wealth management team at Morgan Stanley told its clients last October that the time to buy Bitcoin is before the halving, not after. Simply stated, if you wait too long to buy, you’ll miss out on all of Bitcoin’s expected gains right after the halving takes place.
Why the halving could send Bitcoin lower
There are two sides to every digital coin, and some Bitcoin skeptics out there think the upcoming halving will overpromise and underdeliver.
For one, the crypto might have peaked too early. In three previous halving cycles, it hit a new high after the halving, and not before. But this time around, it’s still 30 days out from the halving, and Bitcoin is roaring to all-time highs. Something seems to be, well, different this time around.
Moreover, there’s the big question of whether or not the impact of the halving has already been priced in. After all, we know the moment of the halving, down to the exact hour, minute, and second. So if you buy into the notion that financial markets are generally efficient, then we shouldn’t see a major pop after the halving.
In fact, JPMorgan Chase has warned that the price of Bitcoin might actually sink as low as $42,000 after the halving, due in part to what the halving event will mean for key members of the crypto’s ecosystem.
Bitcoin miners, for example, could see their production costs soar at the same time as their mining rewards are being cut in half. With miners reeling, says JPMorgan Chase, that could inject a lot more selling pressure into the crypto market.
Stay focused on the long-term picture for Bitcoin
At the end of the day, focusing too much on a single date in history — the halving date — might be a mistake. From my perspective, the long-term trajectory for Bitcoin is up, and I’m not worried about a potential downswing after the halving. Now that Wall Street has embraced crypto, the influx of new money into the Bitcoin ETFs shows no signs of stopping.
As both retail and institutional investors boost their portfolio allocations to Bitcoin, this appears to be a trend with enormous long-term staying power. As a result, I’m enormously bullish on the cryptocurrency’s prospects.
Over the long haul, Bitcoin has the potential to outperform every other asset class, much as it has since 2011. For that reason, I’m buying it before the upcoming halving, and I’m not giving it a second thought.
