Bitcoin (CRYPTO: BTC) is now less than one year away from a highly anticipated event known as halving, and crypto analysts are already starting to bump up their price targets. The latest model claims that Bitcoin will reach a price of $160,000 by April 2024. Based on today's price of $27,941, that would imply a rally of nearly 500%.
But not so fast. While past halvings have led to significant appreciation in the price of the crypto both before and after the event, there is less agreement on how long this rally might last, and even how significant it might be this time around. Let's take a closer look.
The Bitcoin halving
The halving is the reduction in the reward for mining a block on the Bitcoin blockchain by one-half. Currently, miners receive 6.25 bitcoins for every block they mine. Beginning in April 2024, they will receive 3.125 bitcoins. This halving event occurs every four years, and will continue to occur like clockwork until all the bitcoins that will ever exist have been mined by the year 2140.
Image source: Getty Images.
This feature is designed to make Bitcoin more deflationary over time. It has a maximum lifetime supply of 21 million coins, and there are already 19.4 million in circulation, so it's easy to see how the halving introduces scarcity into the equation. Between now and 2140, only 1.6 million additional bitcoins can ever be mined, and the pace at which this happens is getting slower and slower over time.
Impact of halving on price
Since Bitcoin's launch in 2009, there have been three different halving events: in 2012, 2016, and 2020. Thus, there is (relatively speaking) a significant amount of data to examine to see what the impact on the price might be. After the last halving in 2020, for example, it exploded by 688% over the next 546 days, eventually reaching a high of $67,594. And before that, the crypto's price skyrocketed by an astounding 2,824% in the wake of its 2016 halving, reaching what was then an all-time high of $19,065.
There was also an impact on the price of Bitcoin before the halving. For example, before the 2020 halving, it was up nearly 20%. Before the 2016 halving, it rose 142%. And before the 2012 halving, it gained 384%.
Will the same pattern happen in 2023-2024?
Thus, if you use a similar data set, most models will probably suggest that Bitcoin will rally yet again, both before and after the 2024 halving. As a result, there already have been some remarkable forecasts. The baseline forecast seems to be $100,000 by the end of 2024.
But in November 2022, crypto hedge fund Pantera Capital put out a price target of $149,000. And in May, one crypto analyst -- using a number of technical trading factors -- came up with a forecast of $160,000 by the time of the next halving. This last forecast, in my opinion, seems to be particularly aggressive. As noted above, the biggest pre-halving rally until now has been 384%.
Also remember: History is no guarantee of future performance. Just because Bitcoin behaved one way in the past does not mean it will do so again. Moreover, there is always model risk. Different models can come up with different forecasts, depending on which numbers and dates you use. So before you start investing as a result of the latest new price forecast, be careful that you know how it's being calculated.
Other factors to consider
The big question is whether the upcoming halving is even going to be the biggest catalyst for Bitcoin. The halving is a purely technical event, and does not take into account overall macroeconomic conditions. Thus, any price forecasts need to be balanced with a nuanced understanding of how factors like inflation or recession might spoil the party in 2024. We're already seeing evidence of this, with the digital currency struggling to get past the $30,000 price level due to overall economic weakness.
At the end of the day, I do think the halving will have a significant positive impact on the digital coin's price. But I'm rethinking how much of an impact. Just based on the simple mathematics involved, it seems like every halving from here on out is going to have less and less impact on the price of the crypto. I'm still bullish on Bitcoin, but I am pumping the brakes when it comes to price forecasts for 2024.
