If you have bought Bitcoin, make sure you do this

The publicity during Bitcoin’s incredible run from roughly $5,000 in March 2020 to just over $68,000 in November 2021 was likely responsible for drawing many newcomers to the native cryptocurrency. If you are one of these newcomers who have purchased Bitcoin (BTC -4.12%) If you’re hoping for a similar run, you’re likely to be disappointed by its dismal performance in 2022.

But before you sell or look for other options, let’s go over why it might be a mistake you don’t want to make.

Half of a half of a half

One of Bitcoin’s most unique features is known as a halving event. These halvings are what reduce the growth in the supply of Bitcoin over time. Unlike central banks, which can print money, or other cryptocurrencies that have an unlimited supply, Bitcoin is designed to be limited to 21 million coins. Currently, there are around 19 million bitcoins in circulation.

To achieve this, Bitcoin’s code halves the reward that miners receive when they successfully mine the next block after every 210,000 blocks. Since a block is mined about every 10 minutes, we can do some math and realize that a halving event happens about every four years. We can do some more math and find that the last Bitcoin will not be mined until around the year 2140.

These halving events gradually reduce the supply. When combined with increased demand, it becomes easy to see why Bitcoin is gaining value. Investors who have not held Bitcoin for at least one halving cycle are missing out on the one feature that makes Bitcoin so unique.

There have been three halvings in Bitcoin’s history. The first occurred in 2012 and reduced the block reward from 50 bitcoins to 25. The next was in 2016, which then made the reward 12.5 bitcoins. And the last one was in May 2020, reducing the reward to 6.25.

What the halves tell us

When analyzing Bitcoin’s price action around these halvings, a few things become clear. On average, Bitcoin reaches a new high about 1.5 years after the halving. Additionally, a bottom appears to hit around 1.5 years before the halving event. And finally, Bitcoin’s price at the time of the next halving event tends to be around 55% lower than the previous all-time high. These timelines and percentages are only averages, but they provide some insight into Bitcoin’s price calculations.

Let’s unpack all of this. We are currently just under two years from the next halving, which is due around May 2024. Given this, it may be likely that a bottom for this halving cycle has been reached. As long as past trends hold true, Bitcoin’s price should be around 55% lower than its all-time high of nearly $69,000. That puts it at around $30,000.

At a price of around $22,000 today, Bitcoin is well below the projected May 2024 halving price of $30,000. While we can never time a market, nor should we, now may be a good time to add Bitcoin – your position.

Those who were a bit late to the Bitcoin party in 2021 and are now losing their investment should do one thing: hang on. Time is on your side. In the past, Bitcoin has rewarded those who persist for at least one halving cycle. And it seems that the best return comes around 1.5 years after the halving. If you bought Bitcoin at or near the top of 2021, you should aim for 2025.

With the next halving closer every day, Bitcoin is doing exactly what Bitcoin has done in the past. A collective deep breath may be necessary after the rollercoaster of 2020 and 2021, but investors should rest assured that the world’s most valuable cryptocurrency is developing exactly as it should be.