Bitcoin (BTC 1.53%) has only been around for a little less than 14 years. Yet in that amount of time, it has transformed from a speculative asset alleged to only be used by criminals to one held by Fortune 500 companies, billionaires, and even the governments of countries. Its rise has been nothing short of spectacular and, in my opinion, historical.
Despite this success, Bitcoin and its investors once again find themselves at a crossroads as the cryptocurrency has shed more than 75% of its value since hitting an all-time high just shy of $70,000 in November 2021.
While this might alarm prospective investors and those who may have bought at or near the top in 2021, there is still one positive pattern and phenomenon that has held true since Bitcoin was created -- those who buy and hold for the long term gain the most.
You may have seen articles and charts before that show Bitcoin is no stranger to drops like this year. Past bear markets caused Bitcoin to lose as much as 90%, and yet it remained resilient and rebounded. While that might be reassuring, new data has come out that might further support the importance of holding Bitcoin for the long term.
A half of a half of a half
Even though Bitcoin is a relatively new asset, past data is still useful to give investors perspective. And nothing might give investors more perspective than this -- on average, every Bitcoin held for at least 210,000 blocks, or roughly four years, has produced at least a 100% return.
Every four years, Bitcoin undergoes a phenomenon known as a halving, and the time between each halving is referred to as an epoch. When a halving arrives, it cuts the reward that Bitcoin miners receive in half, thereby reducing the rate at which new bitcoins enters circulation. So far, there have been four epochs and three halvings (November 2012, July 2016, and May 2020). Originally the miner reward was 50 bitcoins, but since then, it has dwindled to just 6.25 bitcoins and will fall to 3.125 sometime in May 2024.
Now that you have a better idea about why halvings are so important, let's take a deeper dive into some data.
Numbers don't lie
Unfortunately, I can't show you the chart published in BTC Times so you will have to make my word for it.
The data that I discovered shows that in all of its history, if someone bought Bitcoin, no matter the amount, and waited to sell until 210,000 blocks or four years had passed, the return has always been more than 100%. I know most people are visual learners but an explanation might help paint the picture.
Let's say you bought Bitcoin at block 136,375 in epoch three (Dec. 31, 2018) when it's price was just $3,740. Suppose you waited for 210,000 blocks to pass or roughly four years, and sold that Bitcoin at the block 136,375 in epoch four (Dec. 7, 2022). Because Bitcoin's price was $16,838 at this time, that means you would have a 350% return, even after the recent plunge.
Maybe another example would help, but this time let's look forward. Let's say you bought Bitcoin at the time of this writing when its price was about $16,900 and at block 138,100 in the current epoch. The data imply that based on past trends, the price of Bitcoin at block 138,100 in the next epoch (which would be around four years from now) would be worth at least $33,800 -- a 100% return, or possibly more. That would most definitely beat the stock market's historical return of 11% per year.
This is just one example, but the data show that this trend has happened for every Bitcoin purchase at every block in every epoch's history. I may be biased, but that is simply astounding.
Consistent discipline over the long term wins
The purpose of showing this data isn't to entice you to try and time the market. Rather, the goal here is to show that Bitcoin rewards investors who maintain a long-term time horizon. Our analysis here broke down the returns from epoch to epoch, or roughly four years. Imagine if you had held for two epochs or three epochs. The returns would be monumental.
Even with the recent decimation in price in 2022, this pattern has still held true. If it persists, then this could be one of the more opportunistic times for investors to add some Bitcoin to their portfolio while prices are low. If you bought Bitcoin in the past and are currently sitting at a loss, I would urge you to remain patient and to continue to hold. And if you are one of the select few that have held Bitcoin for multiple epochs, kudos, and happy holding.
