The halving could be a huge catalyst for Bitcoin, according to billionaire venture capitalist Chamath Palihapitiya.
Throughout the first six months of 2024, you’ve probably heard all sorts of ultra-bullish predictions for where the price of Bitcoin (BTC 0.29%) could be headed next. International bank Standard Chartered, for example, now thinks Bitcoin could soar to $150,000 by the end of 2024.
That price target is aggressive, but it might not be aggressive enough. Billionaire venture capitalist Chamath Palihapitiya thinks Bitcoin could hit $500,000 by October 2025. According to Palihapitiya, two key catalysts could make this happen.
The Bitcoin halving
The primary catalyst for rapid price appreciation is the halving. Bitcoin recently had its fourth halving on April 19, and the current expectation is that this event will unlock tremendous value over the next year.
In each halving, the reward paid to Bitcoin miners is cut in half. That might not sound like a big deal (unless you’re a Bitcoin miner), but it has profound implications for the price of Bitcoin. First, the halving enhances the scarcity of Bitcoin. Second, it also enhances the anti-inflationary nature of Bitcoin, making it even more sought after as a hedge against inflation.
It’s the combination of those two factors that have led to some truly stratospheric returns for Bitcoin in previous halving cycles. In May 2020, for example, Bitcoin soared from a price of about $8,800 to a (then) all-time high of $69,000 in November 2021.
To model Bitcoin’s future price performance, Palihapitiya analyzed Bitcoin’s price performance over different time intervals of the 2020 halving cycle. Over the first three months, Bitcoin’s price increased “only” by a multiple of 1.37x, as investors tried to sort out what was happening to Bitcoin. But as the effects of the halving began to play out, the price of Bitcoin soared by a multiple of 6.51x over 12 months, and 7.8x over 18 months.
Using these numbers, Palihapitiya says it’s possible to construct a potential timeline of how the price of Bitcoin might increase over the 2024 halving cycle. We can probably expect the price of Bitcoin to trade largely sideways through much of the summer. That marks the first three months of the cycle. But the price of Bitcoin could start to heat up as we head into the fall and winter. By next April, the price of Bitcoin could be well on its way to $500,000.
Of course, past performance is no guarantee of future performance. Just because Bitcoin behaved in a certain way four years ago is no guarantee that it will behave the same way today. To some degree, Palihapitiya recognizes this. Given the even bigger price gains in the 2012 and 2016 halving cycles, Palihapitiya focused only on the 2020 halving cycle, to keep price estimates as conservative as possible.
Bitcoin as a reserve asset
The second key factor is Bitcoin’s growing opportunity to become a global reserve asset. According to Palihapitiya, non-Western nations are increasingly likely to become “dual currency.” This means they will choose to hold both their domestic currencies and Bitcoin.
You’re probably thinking: Why would a nation want to hold Bitcoin when it can hold U.S. dollars? Well, consider the plight of the dollar. The U.S. is adding $1 trillion in new debt every 100 days, and its budget deficits are becoming worrisome. The more debt the U.S. takes on, the more money it needs to print, and the less valuable the dollar becomes. Palihapitiya refers to this as the process of “dollar debasement.”
Given this context, it’s possible to understand why some non-Western nations may not want to hold dollars anymore. Case in point: Saudi Arabia is rethinking its petrodollar arrangement with the United States. This arrangement, which has lasted 50 years, is arguably one of the most important underpinnings of the modern global economy. It forces everyone in the world to buy dollars to buy oil, and it ensures constant demand for U.S. debt.
If nations around the world start to hold fewer dollars, it could open the door for Bitcoin. Add in the fact that many institutional investors now view Bitcoin as a form of “digital gold,” and it’s easy to see the path for Bitcoin to become a reserve asset. At some point, Palihapitiya thinks Bitcoin might replace gold entirely.
How likely is this scenario?
While it’s possible to poke holes in the “Bitcoin halving leads to huge price gains” thesis, even skeptics have to admit that there is something fundamentally new this time around with the 2024 halving. This is the first time ever that we’ve had spot Bitcoin ETFs, and that could make all the difference. Any selling pressure in the crypto market could be offset by new investor flows into the ETFs.
As a result, I’m still bullish on Bitcoin, despite its recent lackadaisical performance since the April halving. If things go according to plan, crypto investors could have a lot to celebrate in 2025.
