Here’s why I won’t stop buying Bitcoin

The Bitcoin halving is a process that happens every four years, and involves halving the number of Bitcoins that miners receive as a reward. The next Bitcoin halving is expected to happen in April or May 2024, about a year from now.

Although the event may seem insignificant, historically it has been followed by significant increases in the price of Bitcoin, and this presents an excellent opportunity for investors to buy Bitcoin today and potentially benefit from the price increase that follows.

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Why the halving matters

The halving process is a critical part of what makes Bitcoin so unique and is used to control the supply of coins entering circulation. Hardwired into its code, roughly every four years (or after 210,000 blocks are added to the blockchain) this halving event takes place and reduces the number of Bitcoins awarded to miners, which is the primary way new coins are created.

Essentially, the halving process creates scarcity of Bitcoin, which in turn drives up the price of the cryptocurrency. As the supply of Bitcoin becomes more limited, demand usually increases, leading to an increase in price. This is very different from the process of splitting a stock, which simply divides the same asset into a larger number of smaller slices. A halving is a fundamental change in the relative value of each new Bitcoin in a tightly controlled total market.

Originally, the mining reward was a whopping 50 Bitcoins. But since then there have been two more halvings and today the mining reward is 6.25 Bitcoins. However, this number will change again in about a year when Bitcoin undergoes its next halving – and that’s the main reason I won’t stop buying Bitcoin today.

What the numbers say

By looking at Bitcoin’s historical price about a year before and after each halving event, you can see a pattern of significant price increases.

Although buying Bitcoin at the time of each halving will yield significant returns, the most lucrative returns are achieved by buying in preparation for the halving, especially when it is a year away.

In the time between a year before and after the first halving in November 2012, it rose by more than 43,000% as it rose from about $2.50 to nearly $1,100. The next halving was in July 2016, and while not as significant an increase, it was still extremely lucrative. As a result of this halving, Bitcoin increased from $280 to around $2,225, an increase of 640%. And finally, the last halving. A year before May 2020, Bitcoin’s price was a paltry $6,975. But a year after the halving, it rose 609% to reach a price of $49,500.

While hindsight is always 20/20, the numbers don’t lie. A year before an upcoming halving has proven to be a great time to buy Bitcoin while the price is still discounted. And it seems this is still the case today. This is a scheduled event that adds a simple amount of value to existing Bitcoins, so I’m not trying to time an unpredictable market. Of course, the price trend may take different turns this time as investors adjust to the well-documented halving effect, but the larger point remains the same: Bitcoin should become more valuable over time due to limited supply.

The game plan

Despite the strong rally to start 2023, with an increase of more than 70%, Bitcoin’s price is still far from its all-time high of more than $68,000. While the first halving was likely an outlier due to its massive price increase (43,000%), if Bitcoin were to make a similar return on the last two halvings of around 600%, it would see a price tag of more than $200,000.

This may sound like trying to time the market, but in reality it is quite the opposite. While buying a year before the halving and selling a year after may seem like a foolproof way to generate some returns, there are potential gains that are being missed.

In reality, the true goal is to buy and hold for multiple halving cycles. If past trends continue, the longer you hold onto these precious Bitcoins, the more likely they will appreciate at a rate that few other assets can even come close to. For that reason alone, Bitcoin is worth a major consideration with its heavily discounted price and the next halving set for next year.