Cryptocurrency investors have been on a wild ride the past few years, but their patience has paid off. Leading cryptocurrency Bitcoin (BTC 0.97%) fell to less than $16,000 in late 2022 but has nearly tripled since then. Now, in 2024, something is happening that investors haven't seen since 2020.
No, it's not the presidential election. Bitcoin is halving. You might not know what that means if you've only owned Bitcoin over the last couple of years, but it's a notable event that could affect where the crypto's price goes.
Here is what you need to know about what's coming and whether you should buy Bitcoin before it happens.
The halving is happening
Bitcoin runs on a decentralized ledger called a blockchain where every transaction is visible to everyone. That makes it secure because everyone on the blockchain can view and validate every transaction. As users make transactions, they are arranged into groups called blocks.
Mining is an essential part of how Bitcoin works. A new block must be validated before being formally added to the blockchain. Bitcoin miners use huge banks of computers to validate blocks and solve complex mathematical puzzles. It's like digging through a room filled with keys to find the unique one that unlocks the door. The blockchain rewards a miner who successfully solves a puzzle with new Bitcoins.
Today, the Bitcoin reward is 6.25 coins for each mined block. The network reduces that reward by half every 210,000 blocks. This is called a halving. The point of the halving is to reduce the rate at which new Bitcoins enter circulation. At the rate at which blocks are mined, the next halving will occur in April or May, just a few months from now.
How could that affect Bitcoin's price?
Bitcoin's supply is designed to be finite. Its creator set a fixed cap of 21 million coins. The halving is another mechanism intended to control how much Bitcoin enters circulation. The long-term investment pitch for Bitcoin is that more people will use it while supply growth simultaneously slows, meaning the price should rise.
Bitcoin Price data by YCharts
You could easily say Bitcoin has proven very volatile, but when you zoom out, you'll see the price has trended higher. There's a case to make that halving, which occurred in 2012, 2016, and 2020, tends to send Bitcoin's price higher.
Should investors buy Bitcoin before it halves?
Bitcoin is volatile enough that investors shouldn't jump into it with both feet. Dollar-cost averaging is the smartest strategy. The good news is that we're in a new bull market, which could be good news for Bitcoin if that optimism flows into crypto.
The critical thing to focus on is Bitcoin's return potential over the long term.
Bitcoin Price data by YCharts
As you can see, Bitcoin has crushed the broader stock market despite huge swings that put investors through stomach-turning declines:
Bitcoin Price data by YCharts
That doesn't guarantee future returns, of course, but Bitcoin has been around long enough to give investors a solid history to look back on and learn from. The great thing about Bitcoin is how structured it is. It operates the same way it always has and will continue that way in the future.
As long as investors and users continue to want Bitcoin, the halving and the slowing inflow of new Bitcoins to the market could continue supporting market-beating price growth.
