Investors love to speculate on the future potential of assets, but they also love to pull the "woulda, coulda, shoulda" with investments they passed on. No other asset seems to generate that type of retrospective remorse more than cryptocurrencies in the past decade. Out of the vast array of cryptocurrencies, there is one that tends to come to the mind of anguished investors first: Bitcoin (BTC 0.35%).
Due to its notoriety as the first cryptocurrency and also the most valuable by market cap, Bitcoin is likely the one cryptocurrency that stirs those feelings most among investors who wished they bought early. Those feelings may be valid, but Bitcoin's inherent characteristics are conducive to providing investors with more than just one opportunity to buy.
Scarcity drives value
Thanks to Bitcoin's programming, the growth in the supply of the cryptocurrency slows with time. There are roughly 19 million bitcoins in circulation today out of the predefined 21 million. With only 2 million or so set to be created over the next 118 years, the price of one Bitcoin has the potential to continuously rise as the dynamics of supply and demand unfold.
The primary mechanism that ensures Bitcoin becomes scarce is known as halving. Bitcoin's code is written so that roughly every four years, the reward for mining a Bitcoin is cut in half. Originally the block reward was 50 bitcoins, but today the reward is 6.25 bitcoins. This means that every block that is mined puts another 6.25 bitcoins into circulation. The next halving will likely occur sometime in May 2024 and will cut the block reward to just 3.125 bitcoins, and this process will continue until 2140 when the last Bitcoin is scheduled to be mined.
But until that day comes, I believe people will continue to wish they had invested in Bitcoin. It's my guess that investors will repeatedly look back and think "if I would have invested in Bitcoin at this time, then I would have this amount of money."
Hindsight is always 20/20. But whether you invested in Bitcoin at its all-time high last year or invested in it 10 years ago, one thing continues to remain true: The longer you hold, the more likely you are to reap the rewards.
Numbers don't lie
The proof is in the data. So let's have a little fun and look at how much money $100 would be worth if you would have invested in Bitcoin at its first halving. At the time, the price of Bitcoin was a measly $12. By the time the next halving rolled around in July 2016, when Bitcoin was worth $665, your $100 investment would be worth more than $5,000.
Now let's say you held on to your original $100 investment until the most recent halving, which happened on May 11, 2020. At the time, Bitcoin was worth around $8,800. That same $100 investment would now be worth more than $70,000 -- an unbelievable increase of nearly 75,000%.
Although we can never time a market nor should we try, if you were to have sold the original $100 at the market top in November 2021, your $100 investment would be worth a near-inconceivable $575,000.
If you took a closer look at Bitcoin's return around halving events, another pattern should become clear: The returns produced are significantly less than the previous halving period. From the time between the first and second halving, Bitcoin ascended the most in its history, an astounding 5,300%.
From the second halving, when Bitcoin was worth $650, and the third halving at a price of roughly $8,800, the price increased 1,253%. Even if the percent return between the third halving and the upcoming fourth halving were to decrease fourfold like it has in the past, that would still entail a 300% return -- not bad.
It's not too late
These numbers might stir some FOMO (fear of missing out), but if past patterns of Bitcoin's price continue to play out, then in reality there is no better time to buy Bitcoin than now. And if you are looking to maximize your potential upside, then you must do one thing: Hold for at least one Bitcoin halving.
So, if you bought at the top in November 2021 when Bitcoin was worth almost $69,000, then 2022 has been disappointing. If I can offer one piece of advice, it is to hold until May 2024 and use this time to build up your position while prices are low. Eventually, one day, your conviction now will be the envy of those in the future.