Looking back at 2023, a key development has been the resurgence of the cryptocurrency market. The industry's current valuation of over $1.6 trillion is about 100% higher than it was nearly 12 months ago.
Unsurprisingly, the most valuable digital asset, Bitcoin (BTC 0.89%), has also benefited tremendously. But bigger gains could be on the horizon.
Even though Bitcoin has climbed 154% in 2023 (as of Dec. 20), I expect this top cryptocurrency to surge even higher in 2024. Here's why.
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A major catalyst for Bitcoin on the horizon
Unlike Ethereum, Bitcoin operates what is known as a proof-of-work consensus mechanism. This means that so-called miners must expend computational power and electricity (the "work") to win the right to approve transactions to the blockchain. For this effort, miners receive a reward in the form of newly created Bitcoin.
About every four years, the reward that miners get for doing this essential task gets cut in half, in an event known as a "halving." Bitcoin and crypto observers are likely aware that the next halving event is slated to take place in April 2024. After this point, miners will get 3.125 new coins each time they approve transactions.
Why is this so important for Bitcoin? Well, if history is any indication, Bitcoin's price is poised to continue soaring in the next 12 months and perhaps even longer.
The last Bitcoin halving took place in May 2020. In the two months before, the crypto's price rose 65%. And in the 18 months after, Bitcoin skyrocketed 616% to reach its all-time high of under $69,000 in November 2021. A similar situation played out around the halving events in 2016 and 2012.
Conceptually, it makes sense why this has typically been a bullish situation. Over the past decade, demand for Bitcoin has increased. This is due to it becoming more widely adopted as a store of value. The fact that Bitcoin is also getting recognition as a legitimate financial asset from incumbent institutions, corporations, and governments also helps.
At the same time that demand rises, new Bitcoin entering the market has decreased every four or so years. Restricting supply is the other key ingredient, and maybe the more important one, that drives up the digital asset's price. The Bitcoin halving is a key aspect of the blockchain network, and it supports the enforcement of there ever only being 21 million coins in circulation.
Investors should maintain a long-term mindset
Before you rush to buy Bitcoin in the hopes of generating outsized returns in 2024, it's worth mentioning that investors should still maintain a long-term perspective. This is an asset that deserves a 10-year mental outlook, not a 12-month one.
Bitcoin will continue to be volatile, even though it has historically done a fantastic job of rewarding investors. By staying focused on the next several years, you can have the conviction needed to avoid selling at the wrong times, and consequently hurting your portfolio's potential returns.
The economic backdrop also can't be ignored, as things are still very uncertain. While the Federal Reserve might feel confident enough to cut rates in 2024, the U.S. could still experience a harsh recession. I honestly don't think anyone has any clue what the economic situation will look like next year. If things go south, Bitcoin could be negatively affected as capital flees to what people view as safer and less risky assets.
These points are only made to help investors temper expectations. Nonetheless, now might be one of the best times to buy Bitcoin.
