The Most Predictable Pattern: Bitcoin’s Four-Year Cycle
This is part two of our multi-part series on Bitcoin and cryptocurrency. In the previous article, we discussed the concept of Bitcoin and its closest analogue, gold, positioning Bitcoin as a digital version of this precious metal. Today, we delve into a critical aspect of Bitcoin’s structure: its predictable cycle, driven by a unique event known as the Bitcoin halving.
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Understanding Bitcoin’s Cycle: The Halving Event
Before we explore Bitcoin’s cycle, it’s crucial to understand the event that triggers this cycle: the Bitcoin halving. The halving is a fundamental aspect of Bitcoin’s design, which directly influences its supply and market dynamics.
Just like gold, all the Bitcoin currently in circulation has been mined. However, unlike the physical process of extracting gold from the earth, Bitcoin is mined through a digital process. This process involves computer systems, often vast networks of computers, working continuously to solve complex algorithms or puzzles. When a puzzle is successfully solved, the miner is rewarded with a block reward – a certain amount of Bitcoin. This is how all the Bitcoin in circulation has been released into the market.
The concept of halving refers to the reduction in the block reward that miners receive. Approximately every four years, the reward for mining a new block of Bitcoin is halved. This systematic reduction ensures that the total supply of Bitcoin will never exceed twenty-one million, creating an inherent scarcity similar to gold.
The Halvings in Order: A Prelude to the Bull Run
Every four years, the Bitcoin halving event marks a significant milestone in its lifecycle. Each halving is accompanied by a reduction in the block reward, signalling the beginning of a bull run in the cryptocurrency market. Let’s look at the halvings that have occurred since Bitcoin’s inception:
- November 28, 2012: The first halving event reduced the block reward from 50 Bitcoin to 25 Bitcoin. Bitcoin’s price at the time was $13 per coin. Within two years, the price surged to $1,152 before experiencing a correction.
- July 16, 2016: The second halving reduced the block reward from 25 Bitcoin to 12.5 Bitcoin. Bitcoin’s price at the time was $664. Within two years, the price soared to over $19,600 before a significant correction.
- May 11, 2020: The third halving event reduced the block reward from 12.5 Bitcoin to 6.25 Bitcoin. Bitcoin’s price at the time was $9,734. Within a year, the price rallied to $69,000.
- April 19, 2024: The most recent halving occurred, reducing the block reward to 3.125 Bitcoin. Bitcoin’s price at the time of the halving was $63,000.
Looking Ahead: Realistic Expectations and Growing Adoption
While some speculators anticipate another exponential growth phase for Bitcoin, reaching astronomical price levels, it’s essential to temper expectations. While a price target of half a million dollars or even a million dollars per Bitcoin may seem enticing, it’s crucial to remain grounded in reality. Realistically, achieving such price levels would require significant capital inflows. Bitcoin’s market capitalisation is roughly $1.4 trillion. Meaning to reach 500k per Bitcoin, we would need to see a 614% increase in value which would require roughly $8.5 trillion of inflows. While possible, is not probable in the near term.
Additionally, the costs of mining Bitcoin are increasing, with estimates suggesting it now costs approximately $53,000 to mine one Bitcoin. This could potentially serve as a natural price floor for Bitcoin moving forward.
However, despite these factors, the adoption of digital assets as a universal medium of exchange continues to grow. Major players in the financial industry, such as BlackRock, Fidelity, and Grayscale, are increasingly investing in Bitcoin. Furthermore, local initiatives, such as self-managed super funds in Australia facilitating cryptocurrency investments, highlight the growing acceptance and integration of cryptocurrencies into mainstream finance.
While a $8.5 trillion increase in market capitalization may be unlikely in the short term, the influx of capital into the cryptocurrency space signals a paradigm shift in global finance. With continued adoption and investment, the future of Bitcoin and cryptocurrency appears promising.
Conclusion
In conclusion, comprehending Bitcoin’s four-year cycle, particularly the significance of halving events, is essential for investors eyeing opportunities in this digital asset. The historical pattern of price rallies following halving events underscores the importance of timing and strategic positioning within Bitcoin’s market cycles. While projections of future price movements abound, investors should exercise caution and diligence, considering both historical data and current market conditions to inform their investment decisions effectively.
The recent halving event, with its reduction in the block reward, reaffirms Bitcoin’s scarcity and deflationary nature. Combined with increasing institutional adoption and regulatory developments, this underscores Bitcoin’s potential as a long-term store of value and a hedge against traditional financial systems’ uncertainties. By staying informed, adopting a disciplined approach, and leveraging expert insights, investors can navigate the complexities of Bitcoin’s cycle to capitalize on potential opportunities while managing risks in this dynamic market.”
*The past performance of any trading system or methodology is not necessarily indicative of future results. This reflects the performance of our trading account.
