On March 13, Bitcoin (CRYPTO: BTC) surged to a record-breaking high of approximately $73,500. Following a harsh period in 2022 for the crypto market where its value dropped by over 65%, seeing this resurgence was a relief for those who endured the journey from the previous high to the low of $16,000.
However, this latest peak holds more significance than just a boost in morale. It marks the first instance where Bitcoin has reached an all-time high before a halving event. Given various other factors, it could serve as an indication of what lies ahead.
Image source: Getty Images.
The Method Behind Bitcoin’s Achievement
Built into the cryptocurrency’s framework is an event called the halving. This occurs after every 210,000 blocks are added to its blockchain (approximately every four years), forming the foundation of Bitcoin’s strong monetary policy. With each halving, the rate of supply growth decreases by half. This process will continue until the final Bitcoin is mined in 2140.
The impact of the halving is rather straightforward. A reduction in the supply rate means that even if demand remains steady, prices must rise.
However, historically, the full effect of the halving is usually felt after it takes place. Interestingly, prior to this year, Bitcoin had never reached a new all-time high before a halving event. This makes its recent surge to $73,000 quite exceptional.
It is common for Bitcoin to experience growth in the year of a halving. During those years, the price typically increases by about 125% as the market anticipates the reduction in supply. But with its current trajectory, Bitcoin seems poised to surpass this average and potentially generate over 200% returns this year, indicating a different path for this halving cycle compared to previous ones.
There are likely several reasons why Bitcoin is ahead of its usual schedule. However, the most evident and influential factor likely boils down to the fundamental principle of supply and demand.
Currently, the available supply is at levels unseen since 2018. With only 2.2 million coins on cryptocurrency exchanges, this halving will witness fewer bitcoins available than in the previous one. The diminishing supply is likely due to a significant number of long-term holders unwilling to part with their coins. Before the recent price increase, these holders possessed a staggering 75% of the total supply.
With steadfast holders causing a notable scarcity, the introduction of spot Bitcoin exchange-traded funds (ETFs) in January further aggravated the situation. In response to strong investor demand, the firms managing these ETFs engaged in significant accumulation efforts.
Although demand has somewhat declined in recent weeks, at one point, the 11 spot Bitcoin ETFs were acquiring at a rate 14 times higher than the cryptocurrency’s daily production (roughly 900 coins). When combined, these factors form a perfect scenario for price appreciation.
Anticipating the Post-Halving Scenario
As promising as this year appears, historical data suggests that the most notable growth usually occurs in the years following a halving event. In the year succeeding a halving, prices have historically surged by over 400% on average as the market competes for a decreasing number of bitcoins entering circulation.
While past performance doesn’t guarantee future outcomes, the existing landscape suggests that 2025 could mirror the trajectories of previous post-halving years. With Bitcoin now firmly established on Wall Street, large institutional investors now have access to the cryptocurrency, a factor absent in previous halving periods.
With supply already hitting record lows, another halving event that slashes its supply growth rate below 1% holds the potential to propel Bitcoin’s value to unprecedented levels. It’s challenging to accurately predict the extent of this surge during the current halving cycle, but signs indicate that 2025 could follow a similar trajectory to past post-halving years, possibly exceeding expectations.
While Bitcoin’s current value lingers around $71,000, there is significant potential for growth in the future for this premier cryptocurrency. With increasing adoption trends and the involvement of major Wall Street players, it seems that the most prosperous days are yet to come. Let’s meet again after the halving.
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RJ Fulton holds positions in Bitcoin. The Motley Fool holds positions in and endorses Bitcoin. The Motley Fool maintains a disclosure policy.
Bitcoin Recently Achieved a Unique Milestone. Could This Indicate Future Trends?
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