Bitcoin (BTC 0.85%) has had a fantastic start to the year, up almost 90% as of July 13. The bulls are certainly happy with this trend, especially after this digital asset tumbled 65% in 2022. As the overall crypto market bounces back, it seems investors are now more optimistic.
Bitcoin's price now is about $31,400, so it remains well off its peak price of nearly $69,000 in late 2021.
Does that mean it's smart to buy this top cryptocurrency while it's still below $40,000? Let's take a closer look at why I think it just might be.
CRYPTO: BTC
Key Data Points
The 2024 halving
Bitcoin runs a proof-of-work consensus mechanism, requiring Bitcoin miners to solve complex computational problems to win the right to process new transactions on the blockchain. The reward for all this effort is newly created Bitcoin. Right now, the block reward is 6.25 coins. Some time probably in April 2024, the reward gets cut in half to 3.125 coins. This event, which occurs roughly every four years, is what's known as a halving.
Although the past is no indication of what the future may hold, the price of Bitcoin has generally gone up starting several months before a halving occurs. And this upward trend continues even 12 to 18 months after a halving. This means that now could be a great time to be a buyer.
This makes sense because a halving essentially cuts the supply growth rate of Bitcoin. A reduced inflow of new supply, coupled with rising demand, should lead to a higher price, according to basic economic theory. Plus, there's the fact that there will only be 21 million coins in circulation. A hard-coded supply cap like this can drive more interest.
To say that Bitcoin's price history is like a roller coaster would be accurate. Throughout its 14-year history, Bitcoin has seen declines of more than 50% numerous times. While the volatility has undoubtedly declined as the asset grows in popularity and its market cap increases, Bitcoin still trades like a speculative growth tech stock.
But one thing is absolutely certain. Bitcoin has always found a way to reach higher highs and higher lows over time, albeit not in a perfectly straight line. Following the next halving event in 2024, I think it's likely that Bitcoin will eclipse its previous all-time high.
Expect greater adoption
It's hard to forecast with any level of precision when, if ever, Bitcoin will become a prominent medium of exchange that's used globally for everyday transactions. There is just a lot of uncertainty around this outcome.
Therefore, I think Bitcoin's best investment case rests on its increasing adoption as a store of value. This means that Bitcoin won't be used for its utility, but instead because it can maintain, or hopefully significantly increase, someone's savings.
Its volatility is gut-wrenching, no doubt, but it's hard to deny Bitcoin's long-term track record. Since April 2011 (the earliest data available on CoinMarketCap), Bitcoin's price has skyrocketed almost 50,000,000%. That absolutely crushes the performance of the S&P 500 and the Nasdaq Composite index by huge margins.
And during this same time period, the price of a single ounce of gold has increased just 29%. Using this data, it's obvious that Bitcoin has done a much better job at building wealth.
As more market participants, especially institutions, start to feel comfortable owning Bitcoin in their portfolios, its price can soar even higher over the next five to 10 years. Large asset managers, like BlackRock and Fidelity, are trying to launch a spot Bitcoin exchange-traded fund.
Interest like this bodes well for Bitcoin's future, making it a good idea to buy Bitcoin while it's still below $40,000.
