Coming off an impressive 2023, when it rose by more than 150%, Bitcoin (BTC -1.58%) is shaping up to have an even better 2024. But will it be able to keep enough momentum to hit the highly anticipated $100,000 mark?
Let's cut to the chase: The answer is yes. The reasoning for this corresponds to several evolving developments, but the most influential boils down to one simple phenomenon: supply and demand. With a bit of math, it becomes easy to see how a six-figure Bitcoin is not only within the realm of possibility but almost a near certainty.
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Half of a half of a half
Even though you can't physically hold a bitcoin, it's like any other asset in that its price is subject to supply and demand. Where the cryptocurrency differs is that we know with certainty not only that it will become more scarce with time, but exactly when and by how much.
Underpinning its robust monetary model is an event hardwired into its code known as the halving. After 210,000 blocks are added to the blockchain -- or roughly every four years -- the crypto's inflation rate is cut in half. This process will occur until 2140 when the last bitcoin is mined.
The next halving is slated for this April, at which point Bitcoin's inflation rate will drop from around 1.75% to just 0.85%. As a result, only 656,250 bitcoins will hit the market from this halving to the next, exactly half of the 1,312,500 that entered the market from the previous halving.
The effects of the halving are relatively simple. As the rate of supply diminishes, Bitcoin's price can soar even if demand stays constant.
In the years that a halving took place, Bitcoin's price grew by around 125% on average. Should a similar situation unfold this time around, a 125% increase from its price at the beginning of the year would put Bitcoin just shy of the six-figure mark at $99,000.
How Bitcoin makes it to $100,000
Assuming this halving plays out like previous ones, we should get awfully close to the coveted $100,000 price tag. However, we must account for another variable: Bitcoin's existing supply levels.
While around 19.6 million bitcoins are technically in circulation today, only 2.3 million are readily available for purchase on exchanges. This is the lowest level seen since early 2018. More importantly, such low levels mean that the upcoming halving will be the first time in Bitcoin's history that there are fewer coins on the market than during the previous halving.
For all of Bitcoin's history, the total supply on exchanges grew, even as halvings passed. But that changed in 2020 when an apparent decline formed. The explanation for this is multifaceted, but the most concise one is that demand has finally started to outpace supply.
Now, the digital coin's historically low supply will come under even greater pressure with a halving on the horizon. While the halving holds the potential to push it close to $100,000, the added impact of a supply shortage will likely prove to be extra fuel it needs to reach six figures.
A necessary disclaimer
The majority of this analysis uses past data to project performance. It should go without saying, but historical patterns are not certainties of future returns. For all we know, this halving could be the anomaly that breaks the trend.
Although it is unclear what the exact outcome will be, it is difficult to ignore the impact of the halving and the compounding effect it will have on an already scarce supply. The relationship between supply and demand is as crucial to an asset's value as gravity is to the solar system. It forms the basis of all patterns and behaviors.
Any alteration to an asset's supply will add upward pressure to its price as long as demand stays constant, and by almost every account, it doesn't look like demand for Bitcoin is going anywhere.
Admittedly, hitting $100,000 in 2024 might be a bit of a long shot, but it is undoubtedly in the cards. If Bitcoin doesn't hit six figures this year, it only provides more time for investors to accumulate it as it hurtles toward the highly anticipated $100,000 mark.
