Bitcoin halved mining rewards. Here’s why I’m buying it now:

On the evening of April 19th, the much anticipated Bitcoin (BTC -2.28%) The halving has finally happened. Crypto investors around the world celebrated this, and with good reason. There have been three previous halving events, each of which resulted in a new bull market cycle for Bitcoin.

So, will the halving cause Bitcoin prices to surge again this year? I think so, and here’s why:

Bitcoin has its own monetary policy.

Many investors may not realize this, but Bitcoin was actually created as a reaction to the 2008 financial crisis. Satoshi Nakamoto, the pseudonymous creator of Bitcoin, blamed irresponsible fiscal and monetary policies for the crisis and sought to create a new type of digital method. Assets that will become “sound money.”

With this in mind, Nakamoto built a unique halving mechanism into the original Bitcoin algorithm. Halving occurs after 210,000 blocks have been added to the Bitcoin blockchain, which occurs approximately once every four years. As soon as the 210,000th block is added, the mining reward for adding a new block is cut in half.

Image source: Getty Images.

Another way to think about this is that Bitcoin is the only asset in the world that has its own monetary policy. The halving mechanism carefully controls how many new Bitcoins can be created at any time. It also sets a hard cap (21 million coins) on how many Bitcoins can be created.

All of this is done to make Bitcoin as inflation-resistant as possible, a feat that even the most talented central bankers have never fully mastered. According to Coinbase Global (NASDAQ: Coin), Bitcoin is now a “programmatic inflation-mitigating asset.” In other words, Bitcoin is literally programmed to resist inflation. So, if you are looking for a long-term store of value, Bitcoin is it.

Bitcoin soared during the last halving.

The second reason I am buying Bitcoin is because there is a very high probability that the value of Bitcoin will skyrocket after April 19th. There have been three previous Bitcoin halving cycles, with Bitcoin hitting all-time highs in each cycle. . Some of them were truly amazing. For example, in the previous halving cycle, Bitcoin surged from $10,000 in May 2020 to $69,000 in November 2021.

Of course, past performance is no guarantee of future performance, so there is a possibility that Bitcoin’s value may not soar as high this time. Coinbase recently modeled the results of three previous halving cycles and found that the effectiveness of each halving diminishes over time. This makes sense considering that there are currently 19.7 million Bitcoins in circulation, which is getting closer and closer to the hard cap of 21 million.

However, something is very different this time due to the fourth Bitcoin halving, which has recently led to the introduction of a new spot Bitcoin ETF. This introduces a whole new source of Bitcoin demand, which will help push Bitcoin prices higher if there is selling pressure following the halving. In fact, some cryptocurrency traders believe that we are already facing a potential “supply squeeze” in terms of available Bitcoin, and that the halving could push Bitcoin prices higher simply based on supply and demand. .

All of this leads us to think that we will get similar types of price dynamics to what we have seen in past Bitcoin halving cycles. According to Coinbase, Bitcoin rose 923% in the six months after the first halving, 37% in the six months after the second halving, and 82% in the six months after the third halving. Therefore, it is certainly possible that Bitcoin will surpass the $100,000 level sometime this year. Given Bitcoin’s current price of $65,000, this represents a rally of around 50%.

How much higher can Bitcoin rise?

As Bitcoin becomes more mainstream, it should start behaving more and more like a traditional financial asset. This means less volatility, higher correlation with stocks and bonds, and more dependence of prices on the overall macroeconomic environment. As a result, there may be less explosive upside than we saw for Bitcoin in previous halving cycles.

Bitcoin can no longer increase its value 100x or 1,000x as easily as it used to, but its price could still rise 10x over the next decade. And that may be a conservative estimate. Ark Invest’s Cathie Wood now thinks Bitcoin will surpass the $1 million price level before 2030. So, if you are thinking of investing in Bitcoin, buckle up and have fun.