Bitcoin (BTC +3.66%) has been on a remarkable run in 2024, defying expectations and once again capturing the attention of investors worldwide. With a staggering 55% surge in value since the beginning of the year and an impressive 320% increase since 2023, the world's most valuable cryptocurrency is showcasing its resilience and proving naysayers wrong yet again.
As April unfolds, a significant event looms on the horizon that could impact Bitcoin's trajectory, but it might not be enough to push it to a new all-time high this month. Here's why investors should be focused on the long term and not just what happens in April.
Image source: Getty Images.
Analyzing the role of the halving
Slated to occur sometime around April 20, Bitcoin will undergo its fourth halving. Occurring roughly every four years, halvings underpin Bitcoin's robust monetary policy as it reduces its inflation rate by half.
This halving will cause the cryptocurrency's inflation rate to fall from 1.75% to roughly 0.8%. Over the long term, it's easy to see how the halvings can lead to serious impacts on Bitcoin's price. With a cut to its supply rate, the halvings make it so that even if demand remains constant, its price must increase to compensate for the diminished supply. However, on a shorter time frame, the halvings have historically produced minimal effects.
Historical returns during halving months have been minimal
Examining past halving events provides valuable insight into Bitcoin's price behavior during these periods. In May 2020, Bitcoin's most recent halving, the cryptocurrency experienced a modest 9.5% increase. In July 2016, Bitcoin actually fell 7%. Going back another four years, Bitcoin jumped only 12% in November 2012 at the time of its first halving.
These figures illustrate the variability of Bitcoin's performance during halving months, with an average return of approximately 4.6%. Applying this average to current prices, it suggests a potential price of around $72,700 by the end of April, falling shy of the record high achieved in mid-March when it notched an all-time high of more than $73,000.
CRYPTO: BTC
Key Data Points
Looking to the future
Despite the potential for short-term fluctuations, the overarching impact of Bitcoin's halving events underscores its long-term potential. During the entirety of years in which a halving occurs, Bitcoin returns an average of 125%. Even better, in the years following a halving, Bitcoin's price has jumped by more than 400% on average. Historically, it is in these post-halving years that Bitcoin typically notches a new all-time high.
By zooming out a bit, it's easy to see how a decrease to its inflation rate amplifies its scarcity and long-term value proposition. While the journey to another record-breaking price may not be immediate, the fundamental dynamics established by halving events position Bitcoin for continued success in the years to come.
It's worth noting that while historical data may offer guidance, it's essential to recognize that time and again Bitcoin has defied projections and surpassed expectations. Even though the average return during halving months may not indicate an imminent all-time high in April, Bitcoin's unpredictable nature means that anything is possible.
Rather than focusing on what this month may bring, investors are better off taking a step back, zooming out and analyzing Bitcoin over the course of years, not just a few weeks or months. As each halving compounds on the previous, increased adoption from retail and institutional investors should exert upward pressure on the world's premier cryptocurrency.
