Cryptocurrencies have proven volatile, but betting against Bitcoin (BTC -1.63%) over the long term has been futile. The cryptocurrency is near an all-time high, supporting the long-term trend of rewarding buy-and-hold investors, despite the bumpy ride.
What does Bitcoin have in store for investors over the next five years? It's an exciting time for the crypto, as the halving is upon us. What does that mean?
Here's what you need to know about Bitcoin's looming event and how it could lift the crypto's price over the next five years.
What is the halving?
The next Bitcoin halving will occur in the coming days. The cryptocurrency operates on a blockchain, a decentralized digital ledger. Computers on the network verify and process the blockchain's transactions in exchange for Bitcoin as payment.
This practice is commonly called mining. Groups of transactions are called blocks. A halving occurs every 210,000 blocks, which cuts the amount of Bitcoin awarded for mining a block in half.
Halving caps the amount of new Bitcoin entering circulation. The hope is that long-term Bitcoin adoption will increase demand while the supply rises increasingly slowly. That supply-and-demand dynamic aims to support a higher Bitcoin price.
Investors have flocked to this crypto over the past year leading up to the halving, possibly due to the anticipated drop in mining rewards. In other words, they're buying Bitcoin before it becomes scarcer.
Not once, but twice
Halving is rare; it takes roughly four years to mine 210,000 blocks. The original reward for mining a block was 50 Bitcoins. Previous halvings have reduced mining rewards to 25, then 12.5, and then 6.25 in 2020. The upcoming halving will reduce it by half again, to 3.125 Bitcoin per block.
Investors considering the long term should see two halvings over the next five years. The next one will occur sometime in 2028 and reduce mining rewards to 1.5625 Bitcoin. Think of it like this: Bitcoin mining rewards will only be a quarter of what they are today within the next five years.
That's bullish news for anyone who believes Bitcoin adoption will continue to rise. Again, more demand with a much slower-growing supply could mean higher prices.
The investor's game plan
There are signs of broader cryptocurrency adoption. According to a survey by Security.org, 40% of U.S. adults own crypto, up from 30% just a year ago. And among those who already own at least some crypto, 63% of them hope to obtain more.
That bodes well for Bitcoin, the flagship token of cryptocurrency. If most consumers hold it, businesses could adopt crypto into their payments. Institutions have already rolled out Bitcoin investment funds due to consumer demand.
The investing game plan is mainly unchanged here. Bitcoin has shown that it can be volatile. Thus far in its history, it's climbed higher over time.
Does that guarantee the future will include higher prices? Of course not, but like the stock market, investors can use history to help educate them on future possibilities. It's a simple long-term investment thesis for Bitcoin if you believe people and businesses will use it more in the future. It boils down to unlimited demand versus a limited supply.
That means using volatility to your advantage, buying dips, and holding. The next five years could be exciting as Bitcoin's supply growth slows to a crawl.
