What a year it has been for Bitcoin (BTC -1.26%). The world's most valuable cryptocurrency is up a whopping 150% year to date (YTD), primarily due to an explosive third quarter.
Since October, Bitcoin is up just over 50%, rising from $27,000 to its new 52-week high of more than $42,000. With some renewed momentum, it feels as though the brutal crypto winter that caused its price to tumble more than 65% might officially be in the rearview mirror.
For other assets, maintaining this pace would be difficult -- but not for Bitcoin. During some of its best bull markets, Bitcoin often provided returns of more than 200%. Best of all, it will likely keep up this historic journey due to evolving supply and demand dynamics.
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Half of a half of a half
Underpinning Bitcoin's scarcity and low inflation rate is a hardcoded event known as a halving. Roughly every four years, or 210,000 blocks added to its blockchain, the number of bitcoins awarded to miners is cut in half. This process will continue until all 21 million bitcoins are mined, an event most of us won't be around for.
In Bitcoin's early years, miners received a whopping 50 bitcoins as a reward for their efforts. But since then, Bitcoin has undergone three halvings. Today, the current block reward is 6.5 bitcoins, and it will fall to 3.25 in just a few months, with the next halving slated for April 2024.
The relationship between halvings, supply and demand, and consequent price appreciation is not a mere coincidence but a fundamental characteristic of Bitcoin. Best of all, due to the transparent nature of Bitcoin's open-source code, we know with certainty that halvings will continue to occur and, more than likely, keep treating investors over the long term.
Bitcoin enters uncharted territory
In preparation for the supply shock that will occur with the next halving, I am treating December as an immense opportunity to grab as many bitcoins as possible before the next halving in April 2024. Yet, there is another factor that makes December an even more momentous time to invest.
For the first time in history, there will be fewer bitcoins available than at the previous halving. In the past, Bitcoin's available supply increased due to the large block rewards provided to miners. However, a threshold was crossed with the passing of the May 2020 halving.
Data extrapolated from the available supply on exchanges suggests that with the most recent halving in 2020, which dropped the block reward to its current level of 6.25 bitcoins, demand finally outstripped supply. Since peaking at 3.2 million bitcoins in March 2020, the number of available bitcoins has decreased by nearly 30% to just 2.3 million. It's the lowest level since March 2018.
With a refreshing resurgence in 2023, the stage is set for Bitcoin to undergo the next chapter in its story of price appreciation and financial revolution. While this progression will transpire over decades, in the near term, Bitcoin's upcoming halving is shaping up to be its most explosive as investors clamor to compete with the record low supply.
History shows that buying Bitcoin in the months before a halving usually treats investors well. While past performance isn't necessarily an indicator of future returns, the combination of historically low inventory and a looming halving is why Bitcoin is my top crypto to buy in December.
