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Bitcoin just did something it had never done before. Could this be a sign of things to come?
On March 13th, Bitcoin (CRYPTO: BTC) rose to a new all-time high of around $73,500. After a brutal crypto winter in 2022, which saw its price plummet more than 65%, the recovery has been a sight to behold for those who have weathered the storm from the previous all-time high to $16,000.
But this new high is more than a morale boost. It’s actually the first time Bitcoin has hit an all-time high before the halving. And based on a handful of other factors, it might just be a sign of things to come.
Image source: Getty Images.
How Bitcoin accomplished this feat
Hardwired into the cryptocurrency’s code is an event known as a halving. The halving, which occurs after every 210,000 blocks added to the blockchain (or roughly every four years), is the basis of the cryptocurrency’s sound monetary policy. With each passing halving, the growth rate of Bitcoin’s supply is halved. This process will continue until the end Bitcoin is mined in 2140.
The effects of the halving are not that hard to see. A cut in the supply rate means that, even if demand remains constant, prices must increase.
But historically the impact of the halving is at its greatest after it has occurred. In fact, Bitcoin never hit a new high before the halving, until this year. This is what makes its recent run to $73,000 an anomaly.
It is not uncommon for Bitcoin to rise in the year it undergoes a halving. During those years, the price increases about 125% as the market anticipates cutting its supply. But on its current trajectory, it is on track to beat the average and return more than 200% this year and that shows how this halving cycle is shaping up to be different from past ones.
There are likely several explanations as to why Bitcoin is ahead of schedule. However, the most obvious and influential probably comes down to the simple phenomenon of supply and demand.
As it stands, the available supply is at levels not seen since 2018. With only 2.2 million coins on cryptocurrency exchanges, this will be the first halving where there are fewer bitcoins available than in the previous halving. The dwindling supply can likely be attributed to a near-record number of holders refusing to part with their precious coins. Before its latest pass, long-term holders had an astonishing 75% of the total supply.
The story continues
With notoriously stubborn holders creating a historic shortage, the arrival of spot Bitcoin exchange traded funds (ETFs) in January exacerbated the problem. To satisfy voracious investor demand, the companies that supply ETFs have embarked on a hoarding of historic proportions.
While demand has cooled somewhat in recent weeks, at one point the 11 spot Bitcoin ETFs were buying at 14 times the cryptocurrency’s daily production rate (around 900 coins). Add it all up and we have the perfect formula for driving up the price.
Waiting for the post-halving
As impressive as this year may be, history tells us that the best times occur in the years after the halving. In the year following the halving, the price increased by more than 400% on average as the market was forced to compete for less bitcoin in circulation.
While past performance does not indicate future results, the current landscape indicates that 2025 is expected to 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 historic lows, another halving that pushes the supply growth rate below 1% has the potential to send the cryptocurrency to unprecedented prices. There’s no easy way to quantify how high it could get during this halving cycle, but it’s likely that 2025 will follow a similar path to previous post-halving years and could be even more explosive.
With the price of Bitcoin hovering around $71,000 today, there is still incredible upside room for the world’s most valuable cryptocurrency. With growing trends in adoption and the arrival of some of the biggest names on Wall Street, it seems like the best days are still far away. See you after the halving.
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RJ Fulton has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.
Bitcoin just did something it had never done before. Could this be a sign of things to come? was originally published by The Motley Fool