It looks like Bitcoin (BTC +5.55%), after rising more than 150% in 2023, has shaken off the frost from the longest crypto winter on record. Yet as great as last year was for the world's original cryptocurrency, 2024 is shaping up to be equally impressive.
There are a few reasons for this, but the most evident and potent is related to evolving supply and demand dynamics and historical patterns. History doesn't always repeat itself, but it often rhymes. And if something similar to years past unfolds in 2024, Bitcoin might have what it takes to hit the coveted $100,000 mark, a gain of more than 120%.
Here's why a six-figure Bitcoin this year shouldn't be ruled out.
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A half of a half of half
One of Bitcoin's more well-known qualities is its finite supply. With a maximum supply of 21 million coins, Bitcoin derives much of its value from the notion that it will become scarcer with time.
But how does Bitcoin preserve this scarcity? The answer is relatively straightforward: It all comes down to a mechanism hardwired into its code known as halving.
After every 210,000 blocks are added to its blockchain, or roughly four years, Bitcoin's supply growth rate is cut in half. Today, the annual growth rate hovers around 1.75%, but will fall to a measly 0.875% in April 2024 at the time of the next halving.
With 19.6 million coins currently in circulation, the halvings ensure that the remaining 1.4 million will gradually enter the market at a decreasing rate until sometime in 2040, the projected year when the last Bitcoin will have been mined.
Halvings form the foundation of Bitcoin's robust monetary policy and long-term value proposition. But they also have an impact on more immediate short-term price dynamics.
While there are other factors that affect Bitcoin's price, elementary laws of supply and demand play a major role. In the years that halvings take place, prices typically increase as demand is forced to compete for a more constrained supply. Most importantly, though, demand doesn't have to increase for prices to rise. Should demand not change and at a minimum remain constant, the reduced growth rate puts pressure on Bitcoin's price.
We can see evidence of this when tracking Bitcoin in years past. During the year in which a halving occurs, Bitcoin rises on average by 128%. While past performance isn't indicative of future results, if a similar situation were to occur in 2024, Bitcoin could reach a price of around $96,000. That's close to the six-figure mark, but not quite there.
CRYPTO: BTC
Key Data Points
Bitcoin enters unprecedented territory
On their own, halvings are significant events that alter Bitcoin's trajectory. But the halving slated for April 2024 will be unlike any other.
For the first time in history, there will be fewer Bitcoins available on the market than at the previous halving. In the past, Bitcoin's available supply increased significantly. However, a threshold was crossed with the passing of the most recent halving in May 2020.
Data extrapolated from the available supply on exchanges suggests that at the time of the May 2020 halving, 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.
There are likely a few factors explaining this phenomenon, but the most likely culprit are the notoriously stubborn Bitcoin holders who never sell. During the crypto winter, long-term holders underwent a phase of historic accumulation. Even as prices plummeted, die-hard Bitcoin investors continued to scoop up coins at what they believed was a discount. Today, the total number of coins held by long-term investors sits at 14.78 million coins, or roughly 75% of Bitcoin's total circulating supply.
To the delight of these long-term holders, they are the reason Bitcoin will find itself in unprecedented territory at the time of the April halving. With a lack of available coins on the market and reduction to its supply growth, Bitcoin's price could soar, to which degree remains to be seen. But given the magnitude of the supply crunch and the combined impact of the halving, a compounding effect will be introduced that should prove more than capable of pushing Bitcoin past the $100,000 mark.
