When it comes to Bitcoin (BTC +0.96%) (and cryptocurrencies in general), few things are certain. However, with a better understanding of Bitcoin's inner workings, there are some certainties that come into focus.
With these in mind, it seems evident that just as Bitcoin hitting $1,000, $10,000, and $50,000 was inevitable, so too is a $100,000 price tag.
Image source: Getty Images.
The effect of the halving
One of Bitcoin's fundamental characteristics that influence its price most is the halving. A halving event occurs approximately every four years, reducing the reward miners receive for adding new blocks to the blockchain by half. As a control for the only way new bitcoins enter circulation, by reducing the miner reward, the halving essentially slashes Bitcoin's inflation rate.
By reducing its inflation rate, the halving alters the dynamics around Bitcoin's supply and demand. With the halving, even if demand remains constant, its price must rise to offset the reduced supply.
So far Bitcoin has undergone four halvings, with the most recent one occurring in April this year, cutting the block reward from 6.25 to 3.125 BTC and pushing its inflation rate to less than 1%. While it might not seem like a big deal, the halving process is the most significant factor that has affected Bitcoin's price over the years.
Historically, Bitcoin tends to see significant price increases in the year following a halving. On average, Bitcoin has jumped roughly 125% higher in halving years. If we measure Bitcoin's price at the beginning of the year, which was around $45,000, a 125% increase would put its price at $99,000. This historical pattern suggests that Bitcoin could come very close to the six-figure mark by the end of the year.
CRYPTO: BTC
Key Data Points
The extra boost Bitcoin needs
If things unfold similarly to past halving years, Bitcoin could find itself near six figures, but not quite. To add a little more certainty that it has what it takes to hit $100,000 sooner than later, there's another factor to consider -- spot Bitcoin ETFs.
In January 2024, 11 spot Bitcoin ETFs were approved, marking a significant milestone for the cryptocurrency and the greater crypto market overall. These ETFs are designed to track the actual price of Bitcoin and offer investors an easy way to gain Bitcoin exposure through traditional brokerages without having to navigate complicated cryptocurrency exchanges. Essentially, the spot Bitcoin ETFs democratize access to Bitcoin and open up the cryptocurrency to new buyers.
While the ETFs will allow retail investors easier access to Bitcoin, the major effect of these ETFs is seen in the realm of institutional investors. Spot Bitcoin ETFs help open up the doors for institutional investors to buy Bitcoin by providing a regulated, familiar investment vehicle. We are starting to see interest grow, as more than half of the top 20 largest hedge funds now have Bitcoin exposure, and this number will likely continue to rise.
We are still in the beginning stages of the spot Bitcoin ETFs' effect, but its significance is already clear. At one point, these 11 ETFs were buying more than 10 times the daily production rate of Bitcoin -- and that was before the halving. In the wake of this buying spree, Bitcoin's price skyrocketed from $45,000 to its current high of more than $73,000.
The rate of buying has subsided over the last couple of months. But if it were to return to these levels, the ETFs would be buying at more than 20 times the daily production rate now that the halving has passed.
The reality investors need to know
With the added effect of the spot Bitcoin ETFs, plus the effects of the halving still materializing, 2024 is shaping up to be the year that Bitcoin hits the coveted six-figure mark. However, it is imperative to remember that investing in Bitcoin should be done with the long haul in mind.
To be honest, whatever happens in 2024 shouldn't matter all that much. It would be nice if Bitcoin were to keep rising, but even if it doesn't, the cryptocurrency's long-term potential would still be intact. Thanks to its finite supply, plus other intangibles like its leading levels of decentralization, security, and resilience, Bitcoin's value is positioned to keep appreciating as the decades pass.
If there's one thing Bitcoin has proved, it is that it rewards the long-term investor. As halvings continue to compound on each other, holders begin to see portfolios grow. Whether Bitcoin hits $100,000 in 2024, 2025, or some other year, the cryptocurrency remains an attractive buy as it continues its journey of long-term price appreciation.
