Why Buying Bitcoin Now Makes So Much Sense

For Bitcoin (BTC -0.46%) rookie, the beatdown that has been 2022 serves as a humbling reminder that the price of the digital coin can fall as quickly as it rose.

But what if I told you that Bitcoin is doing exactly what it has done in the past? In the main, we are right on track. Better yet, what if I told you that the next few months could be one of the best times to buy Bitcoin? To give you a better understanding of why I believe this, we need to examine one of Bitcoin’s unique characteristics that sets it apart from most other cryptocurrencies.

About every four years, or after 210,000 blocks have been mined, the Bitcoin block reward is halved in an event known as a halving. When Bitcoin miners successfully mine a block, they are rewarded with a specified amount of Bitcoin. This is the primary mechanism for creating new bitcoins, but the process also slows the growth of the supply of new coins.

Halving trends

Bitcoin miners are now rewarded with 6,125 bitcoins for creating a new block. Before the last halving in May 2020, the reward was 12.5 bitcoins. And 210,000 blocks before that, it was 25; and another 210,000 blocks before that, the reward was a whopping 50 bitcoins.

Apart from other features like the elite level of security and decentralization, halvings are one of the most important features of Bitcoin.

Of more interest to investors are the price dynamics during halvings and in between. When we chart Bitcoin’s price and mark the dates of the halvings on the same graph, a few things become clear.

Based on data from the last four halvings, Bitcoin’s price typically bottoms out on average when the next halving is about 1 1/2 years out. Knowing that Bitcoin goes through a halving every 210,000 blocks, with a little math, we know that the next Bitcoin halving should happen sometime around May 2024 – or 1 1/2 years from now.

These are only averages, and do not mean that the future will unfold exactly like the past. But the data suggests that the current bear market Bitcoin is in is nothing out of the ordinary. Drops of 70%, 80% or even 90% are par for the course during crypto winters.

If we look a little closer at the price action of Bitcoin around halvings, another phenomenon emerges. About a year and a half after a halving, Bitcoin tends to hit a new all-time high.

What the numbers say

Some numbers might be helpful so you don’t just have to take my word for it. Let’s look back at the first halving, which took place in late November 2012. A little over a year before the halving, Bitcoin bottomed out after falling to just $2.50, a drop of more than 90% from its all-time high at around $30 in June 2011. Almost exactly a year after the halving, it hit a new record high, reaching more than $1,100 in November 2013.

From that high, Bitcoin plummeted all the way to just $177 in mid-January 2015, or about 1 1/2 years before the next halving, which occurred in July 2016. Almost like clockwork, about a year and a half later, Bitcoin hit a new all -time high only $20,000 in December 2017.

After the $20,000 mark, Bitcoin fell for much of 2018. The worst came in December 2018, when Bitcoin fell to just $3,200. Again, this low was roughly 18 months before the next halving, which was slated for May 2020. And like clockwork, a new all-time high (also the most recent) was reached when the crypto reached an astonishing $69,000 in November 2021 – – 1 1/ 2 years after the last halving.

Today we are in a position much like previous halving cycles. It’s been nearly a year and a half since the last all-time high, and Bitcoin has fallen nearly 70%, well within the range of previous trends. To the delight of investors, we are also about 1 1/2 years away from the next halving which is planned for May 2024.

Historically, around this time is one of the most opportunistic periods to buy Bitcoin, where the downside risk is minimized and the upside maximized. Previous data shows that investors who buy today are positioned to reap the biggest gains as long as they hold for a year and a half after the halving in May 2024.

That would mean holding on until at least around the end of 2025. It may seem like a long way out, but investing with this long-term view is one of the most important ways to ensure your portfolio is set up for success.

Will Bitcoin follow the same course as before? We can’t say for sure, but until proven wrong, I’ll remain a believer in the data.