On March 13, Bitcoin (BTC +2.85%) soared to a new all-time high of about $73,500. After a brutal crypto winter in 2022 that saw its price plummet more than 65%, the resurgence was a sight for sore eyes for those who weathered the storm from the previous all-time high back down to $16,000.
But this new high is more than a morale boost. It's actually the first time Bitcoin has ever notched an all-time high before a halving. And based on a handful of other factors, it might just be a sign of what's to come.
Image source: Getty Images.
How Bitcoin accomplished this feat
Hardwired into the cryptocurrency's code is an event known as the halving. Occurring after every 210,000 blocks are added to its blockchain (or roughly every four years), the halving underpins the cryptocurrency's robust monetary policy. With each halving that passes, the rate of Bitcoin's supply growth is cut in half. This process will continue until the last Bitcoin is mined in 2140.
The effects of the halving aren't all that difficult to see. A cut to the rate of supply makes it so that even if demand remains constant, prices must increase.
But the impact of the halving historically reaches its full extent after it occurs. In fact, Bitcoin has never hit a new high before a halving -- until this year. That's what makes its recent run-up to $73,000 an anomaly.
It isn't uncommon for Bitcoin to increase in the year that it undergoes a halving. During those years, the price jumps about 125% as the market anticipates the cut to its supply. But on its current trajectory, it is on pace to surpass the average and return more than 200% this year and it goes to show how this halving cycle is shaping up to be different than past ones.
So far in 2024, #BTC is outperforming the average of prior halving-year returns. pic.twitter.com/z7G2FAWX0Z
-- Benjamin Cowen (@intocryptoverse) March 25, 2024
There are likely several explanations for why Bitcoin is ahead of schedule. However, the most apparent and influential likely boils down to the simple phenomenon of supply and demand.
As it stands, available supply is at levels not seen since 2018. With just 2.2 million coins on cryptocurrency exchanges, this will be the first halving where there are less bitcoins available than the previous halving. The diminishing supply can likely be attributed to a near-record number of holders who refuse to part with their precious coins. Before its last leg up, long-term holders had an astounding 75% of the total supply.
With notoriously stubborn holders creating a historic shortage, the arrival of spot Bitcoin exchange-traded funds (ETFs) in January exacerbated the problem. To meet voracious demand from investors, the firms providing the ETFs embarked on an accumulation of historic proportions.
While demand has cooled slightly in the past few weeks, at one point the 11 spot Bitcoin ETFs were buying at 14 times the rate of the crypto's daily production (roughly 900 coins). Add it all up and we have the perfect formula for the price to rise.
CRYPTO: BTC
Key Data Points
Looking forward to the post-halving
As impressive as this year is shaping up to be, history tells us that the best stretches occur in post-halving years. In the year after a halving, the price rose by more than 400% on average as the market was forced to compete for fewer bitcoins entering circulation.
Even though past performance doesn't indicate future results, the current landscape indicates that 2025 should follow a similar path to previous post-halving years. With Bitcoin's new home on Wall Street, deep-pocketed institutions now have access to the cryptocurrency, a factor not present in past halvings.
With supply already at historical lows, another halving that will push its supply growth rate below 1% holds the potential to send the crypto to prices not yet seen. There is no easy way to quantify just how high it could go during this halving cycle, but it is likely 2025 will follow a similar path as previous post-halving years and could possibly be even more explosive.
As Bitcoin's price hovers around $71,000 today, there is still an incredible amount of upside for the world's most valuable cryptocurrency. With trends in adoption growing and the arrival of some of Wall Street's biggest names, it appears that the best days are still ahead. See you after the halving.
