In the ever-evolving landscape of cryptocurrencies, few events have as much influence and anticipation as Bitcoin(CRYPTO: BTC) halving. On Friday, April 19, the world’s original cryptocurrency underwent its fourth halving, setting the stage for a potential price surge.

While past performance does not guarantee future results, with deeper exploration of the halving, it is clear that the rising price of Bitcoin is as close to a safe bet as you can get in the world of investing, especially in cryptocurrencies. See how far this can go as you enter your new era.

Image source: Getty Images.

What is halving and why is it important

Before jumping into speculation, it is crucial to understand what halving is and why it is so important. Programmed into Bitcoin’s code, this phenomenon occurs approximately every four years, or every 210,000 blocks added to the blockchain, and halves the block reward granted to miners.

As the primary means for new Bitcoins to enter circulation, the reduction in miner rewards effectively reduces Bitcoin’s inflation rate. Now that the fourth halving has passed, Bitcoin’s inflation rate is just 0.85%, half of the previous 1.7%. Because Bitcoin’s code is open source and we can observe its inner workings, we know that this process will continue until 2140, when the last Bitcoin is scheduled to be mined, cementing its status as a deflationary asset.

Given the cyclical nature of the halving, notable trends were found emerging between each of them, namely price appreciation. By changing the production rate, the dynamics behind the supply and demand for Bitcoin are changed. As a result, even if demand remains constant (even though it has historically increased), the cut in supply puts upward pressure on its price.

Assessing historical trends

It’s not difficult to see how the halving impacts the price of Bitcoin. However, by taking it a step further, we can better understand what to expect from Bitcoin in the coming months and years.

On average, Bitcoin increases by around 127%. Measuring from its price at the start of 2024, this would put its year-end price at $100,000.

However, this may just be scratching the surface of what’s to come. Unlike previous reductions, this will be the first time that there will be fewer Bitcoins available on exchanges than at the time of the previous one. When the third halving arrived in May 2020, there were 3.2 million coins on exchanges. This was more than at the time of the second halving in July 2016, when there were around 1 million coins on exchanges.

The story continues

However, since the May 2020 halving, the number of coins has declined, with just 2.2 million on exchanges today. This supply shock could make this halving particularly explosive and is likely to blame for Bitcoin reaching an all-time high before the halving, something it has never done before.

Future prospects and potential growth

While a $100,000 price target for Bitcoin is a considerable jump from current prices, there are compelling reasons for investors to focus beyond this year. Historical data indicates that in the years following the halving, Bitcoin experienced an impressive appreciation of around 400%. If this trend continues and our projected price target of $100,000 hits in 2024, Bitcoin could see its price reach a staggering $500,000 in 2025.

This may sound sensational, but here’s why it can happen. With the introduction of the recently approved spot Bitcoin ETFs in January, this will be the first halving where it is not just retail investors like you and me buying Bitcoins. Now the institutions have arrived and brought with them their deep reserves of capital.

So far, ETFs have been a success and suggest that additional demand from previously sidelined buyers could drive Bitcoin to previously unimaginable heights. Consider that at one point, the companies sponsoring these ETFs were purchasing more than 10 times the daily production rate of Bitcoin (about 900 Bitcoins).

Although the buying rate has cooled over the last month, if demand reaches these record levels, it means ETFs would be buying at 20 times Bitcoin’s daily production rate now that the halving has passed. Combine this with an existing supply shock, and the price of Bitcoin could move higher.

Only time will tell what happens in this halving cycle. But what is more certain is that in approximately four more years, Bitcoin will undergo another halving. For investors with a long enough time frame, the more halvings you can hold, the more likely your holdings will grow as each halving builds on the previous one.

See you in 2028.

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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 Could Hit $100,000 If Previous Halving Trends Realize was originally published by The Motley Fool

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