Despite a strong rally to start off 2023, Bitcoin (BTC -0.91%) still finds itself down 60% from the all-time high it made in Nov. 2021 of nearly $69,000. To most, this might be reason enough to stay away from investing in the world's most valuable cryptocurrency -- but when you take a closer look at Bitcoin's price action during prior crypto winters, it becomes clear that there is a rare opportunity currently at hand.
Simply put, Bitcoin is likely at a level with the least amount of risk and most upside today. The primary reason has to do with something called a halving.
A half of a half of a half
Halvings are unique to Bitcoin and hardwired into its code so that the rate at which new coins enter circulation diminishes roughly every four years, or every 210,000 blocks that are added to the blockchain.
The primary way Bitcoins are created is in the form of a reward given to miners who successfully mine the next block. Initially the block reward was a whopping 50 Bitcoins. But after 210,000 blocks the reward was cut in half to 25. As time has passed, this has since diminished to just 6.25, and sometime around May 2024, the block reward will be cut in half to just 3.125 Bitcoins.
Surprisingly, when we chart Bitcoin's price and overlay the dates of all previous halvings, one clear trend begins to arise -- Bitcoin has tended in the past to bottom out when the next halving is roughly a year and a half away.
Because halvings are set in stone and we know that a new block is added to Bitcoin's blockchain roughly every 10 minutes, we can project with near certainty that the next halving will happen sometime in May 2024. Should this cycle play out like the past, that makes today a once-in-every-four years opportunity to buy Bitcoin at a significantly discounted price, as the next halving is about 15 months away.
Although purchasing at the true year-and-a-half mark in December 2022 would have allowed you to pay less to invest, there is still plenty of room between Bitcoin's current price and its all-time high.
Proof of this doesn't require much additional work, as another pattern becomes evident when analyzing Bitcoin's price around halvings -- it has typically hit a new all time high a year and a half after the halving. If this time around is the same, then November 2025 could be a date for investors to keep an eye on.
While this might sound like an incentive to time the market, it isn't. Our goal is to find assets to buy and hold for the long term, and few other assets have rewarded investors with a long-term time horizon like Bitcoin. As history has shown, those who buy and hold for multiple halvings have the most to gain.
Further proof
Whether this cycle in between halvings plays out the same as the rest remains to be seen, but there is one other metric that reinforces the presumption that today is still a great time to buy and minimize risk. Halvings aside, when Bitcoin sheds more than 65%, it has proven to be one of the most lucrative times to buy.
In Bitcoin's history it has posted multiple losses of more than 60%, and on three occasions has even lost more than 80% of its value. Although hindsight is always 20/20, clearly those who bought Bitcoin after drastic declines like these ended up benefiting the most once prices regained momentum.
As such, even with its price up nearly 70% year to date, Bitcoin remains well off from its all time high of around $69,000. With further downside looking to be as minimal as it has since the last time Bitcoin had a significant drop of more than 60% in Dec. 2018, Bitcoin looks as alluring as ever at today's levels.
