The next Bitcoin (BTC -2.50%) halving, set to take place in April 2024, is already shaping up to be one of the most anticipated crypto events of the year. Since previous Bitcoin halvings have led to huge rallies, Bitcoin bulls are already predicting another massive rally in 2024, with some suggesting that Bitcoin could skyrocket past the $100,000 mark.
But just how likely is this scenario? Based on Bitcoin's price performance after similar halving events in 2012, 2016, and 2020, there's certainly reason to be optimistic. But there are three key factors to consider before you go all in on Bitcoin.
The past performance fallacy
Perhaps the biggest narrative surrounding the Bitcoin halving is that halving always pushes Bitcoin to another all-time high. Most recently, after the last halving event in May 2020, Bitcoin eventually reached its all-time high of $68,790 in November 2021. And the story was largely the same back in 2012 and 2016, when halving events catalyzed impressive bull market rallies.
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Thus, any Bitcoin pricing model that relies on past data is probably going to tell you that Bitcoin is going to rally again in 2024. For example, crypto hedge fund Pantera Capital has analyzed the three previous Bitcoin halvings, crunched all the data, and concluded that Bitcoin is likely to surge to $36,000 by April 2024 before exploding in value to $149,000.
But remember: Past performance is no guarantee of future performance. And keep in mind that during the 2020 Bitcoin halving event, a lot of stimulus money was sloshing around a zero-interest-rate economy, and worldwide lockdowns were the norm.
Supply and demand
The argument for a halving-induced rally focuses on the supply of Bitcoin. With any Bitcoin halving, the reward for mining a new Bitcoin block is also halved. As a result, the rate of supply of new Bitcoin is halved, introducing an element of scarcity. The scarcity effect means the price of Bitcoin should go up, provided demand stays the same or rises.
But what about the demand side of the equation? After all, Economics 101 tells us that the price of an asset is based on the intersection of supply and demand. The typical argument is that a halving event makes Bitcoin more deflationary, which boosts its attractiveness to investors seeking a hedge against inflation, which boosts demand. Fair enough.
However, keep in mind that the overall macroeconomic environment also affects demand. When interest rates are near zero, there's intense demand for risk assets. However, when rates rise, that makes risk assets relatively less appealing. Thus, the demand for a risk asset like Bitcoin typically falls during a rising-interest-rate environment, which is where we are now. In early October, a top Bloomberg strategist suggested that Bitcoin might actually crash to $10,000 if interest rates continue to rise.
A "lite" halving?
Finally, it's important to keep in mind evidence from cryptocurrencies similar to Bitcoin. Take Litecoin (LTC 2.14%), a proof-of-work crypto, just like Bitcoin. In fact, Litecoin was created using the Bitcoin source code, so it's possible to argue that Litecoin is a good proxy for modeling the impact of Bitcoin halvings.
And the evidence from Litecoin is mixed, at best. Prior to this year, Litecoin had two halvings, in 2015 and 2019. And, as can be seen from Litecoin's trading chart, it's impossible to pinpoint an obvious sustained rally in either instance. And then, in August of this year, Litecoin had another halving. This was supposed to send Litecoin soaring, only it didn't. Litecoin is actually down 9% for the year.
What to do about Bitcoin price predictions?
Perhaps the best advice for crypto investors is to take any Bitcoin halving price prediction with a grain of salt. The closer we get to the actual halving event, the more inflated these price predictions could become. The conventional wisdom is that Bitcoin will eventually test its all-time high of $68,790 after the next halving. More aggressive estimates call for Bitcoin to hit the $100,000 mark and beyond.
But what if we only get a Bitcoin halving "lite" next year? If you take a much more conservative view, Bitcoin might increase in value by only 25%, which is approximately how much it increased in the first 150 days after the 2020 halving. If you're counting on a huge surge in value for Bitcoin in 2024, you may be disappointed.
