To say that Bitcoin (BTC -2.94%) is in a bull market would be slightly premature, yet at the same time its gain of almost 70% in 2023 makes the depths of the bear market feel like an eternity ago. As Bitcoin tries to shake off a brutal crypto winter, it can be challenging to discern its current position.
But with some added historical context, it becomes evident that investors typically have the most to gain when Bitcoin seems to be in limbo. You can see this when you zoom out and evaluate Bitcoin's price performance from previous bear and bull cycles. It isn't rocket science, and surely isn't an indicator of future performance -- but when looking back, unmistakable trends in Bitcoin's price begin to appear, and that's why I'm buying today.
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Half of a half of a half
Analysts often use halvings to map out Bitcoin's price cycles. Halvings are a mechanism built into Bitcoin's code where after every 210,000 blocks created, at an interval of about four years, the block subsidy awarded to miners is cut in half.
Since halvings are the primary influence on Bitcoin's monetary policy, they provide easy milestones to break apart the evolution of Bitcoin, and in this analysis we will do the same. Bitcoin is currently just eight months from its next halving (expected in April 2024), when its supply growth rate will be reduced from about 1.75% to just over 0.8%.
Bottoms up
When charting Bitcoin's price between each halving, it becomes apparent that its value usually hits a bottom about a year and a half from the next halving. With the next halving less than a year away, this raises the question: Has Bitcoin kicked the bear market blues?
Like clockwork, in November 2022, Bitcoin's price plunged below $20,000, falling as low as $15,800 and remained below $20,000 until mid-January 2023. Maybe it is a complete coincidence, or perhaps it is the validation of historical bottoms, but November 2022 was roughly 18 months until the next halving. Only time will tell if this was indeed the bottom, but Bitcoin's renewed momentum in 2023 suggests the pattern might repeat.
In the meantime
Price data shows that Bitcoin's stasis as a halving looms is par for the course. Typically, Bitcoin moves within a range for several months before and after the halving as markets adjust to a new supply rate.
To add more detail, another quick analysis shows that Bitcoin's price at the time of the halving is usually about 40% of its previous all-time high, making a possible price target for April 2024 of roughly $30,000. That would represent only a modest appreciation from today's price of about $28,000, but Bitcoin likely has more in store for long-term investors.
When numbers go up
If we are going to surmise that Bitcoin is right on track when it comes to hitting a bottom and will put in modest gains in the months surrounding the halving, then what does the data say about hitting a top? To reiterate, these are just averages and should be taken with a grain of salt -- but historical prices show that roughly 16 months after the halving, Bitcoin notches a new all-time high. The methodology to project just how far Bitcoin can rise is less straightforward and requires further extrapolation, but with a bit of work, it's nothing that can't be solved.
Bitcoin's first halving occurred in November 2012, and it was trading at about $11 at the time. It then peaked in December 2013 (13 months later) at around $1,100 -- nearly a 10,000% increase. By the next halving in July 2016, Bitcoin's price was about $650, but then surged to a new high in December 2017 (17 months later) of just under $20,000 -- almost a 3,000% rise. From the last halving in May 2020, Bitcoin increased about 670%, climbing from roughly $9,000 to a record high of almost $69,000 in November 2021 (18 months).
It's apparent that Bitcoin's returns diminish within each halving cycle. But how much will the price increase after the next halving?
On average, Bitcoin returns about 25% less with each new cycle. With some simple math, we arrive at a projected increase of about 500% for the next cycle. An increase of this size from our speculative $30,000 price in April 2024 would result in a new all-time high of almost $180,000 sometime in the second half of 2025.
Moving forward
With the depths of the bear market seemingly in the rearview, further downside risk is waning, making Bitcoin all the more attractive over the long term. For good measure, it's worth reiterating that this back-of-the-napkin analysis is by no means an indicator of future performance.
However, sometimes a little exploration can provide valuable context. For all we know, this cycle could be the outlier -- but until proven wrong, I am trusting the numbers and using this opportunity to add more Bitcoin to my portfolio.
