Bitcoin's (BTC -2.44%) halving events, which occurs roughly every four years, are among the most anticipated inflection points in the cryptocurrency industry. Due to dynamics revolving around supply and demand, Bitcoin has historically gone on impressive runs when the next halving is about a year away.
So with the next halving likely to happen sometime in April or May 2024, we are officially right at the point when Bitcoin's supply increase changes. This possibly makes this May a great time to buy Bitcoin and hold for the long haul.
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What is the halving?
The halving is a preprogrammed event in the Bitcoin network that occurs just about every four years (or when 210,000 blocks are added to the blockchain) and it is one of the inherent characteristics that make the cryptocurrency so unique. This process halves the number of Bitcoins that are rewarded to miners for solving complex mathematical equations.
Since this is the main way new coins enter circulation, the halving effectively and transparently cuts the rate at which Bitcoin's supply increases. This next halving will reduce the rewards for miners from 6.25 bitcoins to 3.125 and lower the rate of supply increase to just 1% until the next halving sometime in 2028.
The opportunity at hand
When looking back at past halving cycles (there have been three so far), it becomes abundantly clear that the halving plays a significant role in the dynamics around Bitcoin's price. The data show that Bitcoin's price not only seems to be heavily discounted when the next halving is a year away, but that maximum appreciation is reached when Bitcoin is held for at least a year after the halving.
So what do the numbers say? To start, let's go back to Bitcoin's first halving in November 2012, when the mining reward went from 50 bitcoins to 25. A year before this halving, one bitcoin was worth around $2.50. But two years later (a year after the halving), Bitcoin's price climbed to more than $1,000, an increase of nearly 40,000%.
While the first halving might have been the most drastic in terms of price appreciation, the second halving was still lucrative for investors. For those who invested a year before the halving of July 2016 when its price was $285 and held on until a year after when it hit a cyclical high of more than $2,800, they would have realized a profit of more than 600%.
Similar to 2016, roughly an equivalent return would have been made in the most recent halving of May 2020. Investors who purchased Bitcoin when it was worth about $7,100 would have been ecstatic when seeing Bitcoin's price reach more than $60,000 by May 2021, representing another return of more than 600%.
Demand meets limited supply
Trends seen in the last halving cycles seem to be emerging yet again, and most importantly trends related to demand.
In fact, according to blockchain data company Glassnode, the number of active Bitcoin addresses has been growing at a steady rate and surpassed levels at the time of the last halving. Furthermore, the number of addresses with a positive balance now sits at an all-time high of more than 45.7 million. This growth in active and positive addresses usually serves as proxies for increased demand, which could be a positive sign for Bitcoin's price in the future.
Buying Bitcoin in May is not about trying to time the market or make a quick profit. Instead, it's about taking a long-term view of Bitcoin's potential and using the halving as a marker for buying.
The importance of buying Bitcoin in May 2022 is that it provides investors with an opportunity that only comes around once every four years. For those looking to capitalize on the halving's impact, buying at this point in the cycle has historically proven to be the most lucrative.
While only time will tell if this halving cycle plays out like those in the past, the stage is set for Bitcoin's price to once again be driven by the dynamics of supply and demand.
