Bitcoin’s price could rise now that the Bitcoin halving is less than a year away

The Bitcoin (BTC) bear market of 2022-2023 was a dud. Having also held bitcoin through the 2018-2019 bitcoin bear market, I can confirm that this one was just as painful despite being slightly shorter and having a less dramatic maximum withdrawal.

Perhaps my increased financial exposure this time was the cause of this difficulty. Or maybe it was my dashed hopes for better informed mainstream media coverage as I found myself bringing up the same old concerns as before (prohibition, quantum computing, environmental effects).

Anyway, I’m glad to see the rear end of this bear. While nothing is certain, barring some significant negative surprises, such as the COVID-19-induced bitcoin liquidation of March 13, 2020, the bitcoin bear market of 2022-2023 is likely over. Here’s why:

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The halving is near. The Bitcoin halving, which reduces the rate of issuance of new bitcoins, occurs approximately every four years. The previous two halvings both catalyzed major bitcoin bull markets. It’s not hard to see why. Holding demand constant, a downward supply shock forces an upward recalibration in price. Supply and demand always rule, and when the supply is cut, the price rises. The next halving is less than a year away.

No more tourists. As soon as the halving induced bull starts running, it always pulls the amount of speed. These traders see the bitcoin price rising and they pile up. This causes a bubble that eventually ends and they are washed out in the months after the peak. Today, we have passed the washout point, as evidenced by the average age of unused bitcoin transaction outputs (UTXO). The tourists are gone, and the HODLers remain.

More bad news cannot cause new lows. Last year had a lot of bad news in cryptoland, and that carried over to bitcoin’s price. Terra, Three Arrows Capital, Celsius Network, BlockFi, Voyager Digital, FTX and others fell apart. But this year, the bankruptcy of Genesis and concerns about DCG, Grayscale and Binance did not take bitcoin down to new lows. The last of the sellers had already washed out. (CoinDesk, like Genesis and Grayscale, is owned by DCG.)

The cycle repeats: One day, Bitcoin will grow out of its four-year price cycles. Until then, it’s “deja vu all over again”. In the bitcoin bear market of 2014-2015, the price rose to around $350 before finally capitulating to $200 and staying there for several months. In the bitcoin bear market of 2018-2019, the price rose to around $6,000 before finally capitulating to $3,200 and staying there for several months. And in the bitcoin bear market of 2022-2023, the price rose to around $28,000 until it finally capitulated to $16,000 and stayed there for several months. In each of these cases, the price followed a similar pattern of a top, a multi-month series of lower price highs, and a final capitulation of over 40% that lasted for several months, staying true to previous trends.

So what does the future hold? I do not make short-term price predictions. But if bitcoin’s four-year cycle plays out again, and I expect it will, then a couple of things are true.

We will probably never see $16K bitcoin again. Two cycles ago, bitcoin’s price never returned to the lows after returning to its pre-capitulation low. A cycle ago, it almost went back to the low, but it required a massive market unwind due to the COVID-19 pandemic. The next bitcoin halving is less than a year away. Absent a major liquidation event, bitcoin’s price has likely bottomed out.

Bitcoin remains regulatory Teflon. Bitcoin has proven to be relatively immune to regulatory pressure. It has been clear for years now that bitcoin is a commodity and not a security. Even the ultra-active current SEC Chairman Gary Gensler, who has been the most active and aggressive chairman I have seen in my professional career, admits that there is only one crypto asset that is clearly a commodity (and implication). , not a security). He obviously means bitcoin. With or without him, the SEC will likely continue to pursue actions that imply that the vast majority of digital assets are securities. None of this risk sticks to bitcoin.

Financial advisors and institutions are heavily under-allocated to bitcoin. I can confirm from my involvement with Swan Advisor Services that financial advisors and their clients are significantly underallocated to bitcoin. In previous cycles, they had reasonable excuses for that positioning, including a lack of affordable products and significant regulatory risks. For the broader digital asset market, these issues largely remain. But for bitcoin, they are mostly resolved. Therefore, I expect large adoption of bitcoin by financial advisors in the upcoming bull market.

So, what’s next? Now is a good time for financial advisors to start educating their clients on the benefits of including bitcoin in their investment strategies and helping them implement bitcoin allocations in their portfolios. Bitcoin bear markets are good times to accumulate bitcoin. But the end of a bear market is also a great time to add a truly unique asset to any diversified portfolio. The next bitcoin bull market has likely just begun.