Bitcoin could reach its peak 12 to 18 months after its halving in April 2024.
The most exciting property of Bitcoin (from an investment perspective) is its increasing scarcity. Bitcoin is the first (and only) asset in history that has a reliable guarantee of increasing scarcity in its supply issuance.
You may have heard the old adage that land is a great investment because “it’s the only thing that’s no longer being made.” This simple wisdom is true, and incredibly powerful—the global supply of land is “finitely scarce.”
But oddly enough, the better assets from an investment perspective are the ones that are becoming increasingly scarce. That’s why a Michael Jordan rookie card is valuable, or a Van Gogh or a Picasso. Once upon a time, they used to make these items… and now, they don’t anymore. These are examples of all-or-nothing “increasing scarcity.”
Bitcoin uses increasing scarcity to drive reliable appreciation in purchasing power over time. However, it does not flip the scarcity switch in time for the all-or-nothing moment. Instead, from 2009 all the way to 2140, this phenomenon is spaced out by the exponential decay of new supply issuance that we are all witnessing.
This process is not a completely smooth trend running in the background - instead, it is characterized by punctuated equilibriums.Every four years, a very special event occurs: the halving.
What is Bitcoin Halving?
This is Bitcoin’s supply issuance schedule. What does it mean?
The day Bitcoin launched in January 2009… there were 0 Bitcoins in existence. Eventually, there will be a cap of 21 million Bitcoins, an absolute maximum. But how do you get from 0 to 21 million?
The founder of Bitcoin took a very clever approach - incentivizing those who provide computing security for the network ("mining") by rewarding them with Bitcoin. Even more cleverly, he designed the system so that the issuance of Bitcoin is halved every four years. This creates an incredible scarcity growth property - something that no other asset in the real world has ever had. The result is an unimaginable property: Bitcoin becomes more and more valuable over time.
The mechanical magic of this system is achieved through “halvings.” These are moments that permanently cut supply issuance in half, and occur every four years (see the dotted line in the image above).
Surprisingly, this event triggered the operation of the supply and demand mechanism.
Simple code - world-changing impact
This simple feature is hard-coded into the Bitcoin protocol. It may not seem impressive, but it is Bitcoin’s entire monetary policy — written in stone since day 0.
Here's what it means. First, the code counts how many halvings have occurred. Halvings are scheduled to occur every 210,000 blocks (about 4 years, since a new block is produced every 10 minutes on average).
Next, determine the number of new Bitcoins issued with each new block. This is calculated by dividing 50 by 2 after each halving.
As a result, for the first four years, miners of each block will receive 50 new bitcoins. After the first halving, the issuance of bitcoins per block is reduced to 25, until the next halving (4 years later), when the issuance of bitcoins per block is reduced to 12.5.
This pattern of reducing Bitcoin issuance every four years will continue until 2140, when no more Bitcoin will be issued.
Right now, Bitcoin’s supply is inflating by about 1.8% per year. In April 2024, the fourth halving will occur, and suddenly Bitcoin’s supply inflation will drop to 0.9% per year.
This would make Bitcoin a more “hard” asset than gold, as global gold mining increases the gold supply by 1.5-2% each year.
It’s all about supply and demand
When the creation of new supply is cut in half, it creates a supply shock that upends the existing supply-demand price balance. Suddenly, there isn’t as much new supply on the market to meet demand.
Currently, approximately 900 Bitcoins are released every day (6.25 BTC/block x 6 blocks/hour x 24 hours/day). At a price of approximately $30,000 per Bitcoin, this means that approximately $27 million worth of Bitcoins are created and issued to Bitcoin miners every day.
That’s a lot of money. Every month, about $900 million of new Bitcoin is created. In order for the price to remain stable (as it is currently), the demand for Bitcoin to flow in must also remain at about $900 million per month. Any less and the price will fall; any more and the price will rise.
This is why every halving is so exciting for Bitcoin holders.
Let’s assume that the price of Bitcoin remains at $30,000 per coin until the next halving at the end of April 2024. When the halving occurs at block 840,000, suddenly, the supply created and issued on the market is halved to meet the influx of demand.
There will only be $450 million of Bitcoin created each month, but demand for $900 million. This is a guaranteed, predictable, reliable supply shortage. It will start in April 2024.
The only way the free market can resolve an imbalance in supply and demand (because Bitcoin’s supply schedule is completely inelastic) is for the price to rise. This supply shortage will accumulate over time, and buyers will naturally raise their bids to find sellers willing to sell.
It’s pure supply and demand. Yet 99%+ of people have no idea this is happening next year — they’ve never even heard of the Bitcoin halving.
The fact that you’re reading this article means you’re now part of the 1%. This is called information asymmetry — you have an advantage over the rest of the world.
So, what impact have past halvings had on the price of Bitcoin?
Bitcoin’s performance after past halvings
In Bitcoin’s 14-year lifespan, it has experienced three halvings — in 2012, 2016, and 2020. In the 12-18 months following these events, Bitcoin experienced its major bull runs. (You may have first heard of Bitcoin during its crazy rally in 2013, and then were surprised to see it rise again in 2017, and again in 2021.)
Here’s a chart of those rallies (note: the y-axis here is logarithmic, meaning the visual space between $1 and $10 is the same as the visual space between $1,000 and $10,000):
This picture tells the whole story. However, trying to make sense of this data and the noise in it can be a bit overwhelming. So, let’s simplify it - all you need to know is:
Each colored line represents the change in price over the four years after the halving (expressed as a percentage of the price at the time of the halving).
As you can see, each colored line rises sharply in the first 1/3 of the chart, falls in the next 1/3, and then rises (more slowly) in the last 1/3.
That's the pattern. It's that simple.
Those with little knowledge of Bitcoin would dismiss such a pattern as accidental, and think it foolish to expect it to happen again. (After all, “past performance is not indicative of future results.”) The problem is, in this case… it will happen again when the supply and demand mechanism is put into action at block 840,000 on April 27, 2024.
So, what will happen to the price of Bitcoin?
My base case prediction for Bitcoin price action in 2024-25
First, Bitcoin’s volatility and noise are such that everyone is often wrong when predicting what Bitcoin will do — myself included. However, despite the noise, we can make rough predictions about where Bitcoin will go.
Here is the performance of Bitcoin from the halving date to the price peak after the three halvings so far:
There are a few points worth noting:
The time from halving to peak price is fairly consistent in the 12-18 month range
The price increase after each halving decreases gradually
However, it is worth noting that the 2021 price peak was the first cycle in Bitcoin’s history that did not have a price top (instead, it was a two-part dome). This was due to a combination of three forces that caused the price peak to be lower than it would have otherwise been:
Highly leveraged long positions (which dampen upward price action)
China’s mining ban in summer 2021 led to massive panic and Bitcoin selling to fund the relocation of Chinese miners
Fed shifts to quantitative tightening in Q4 2021
Therefore, I still think that if none of these things happened, the price peak of Bitcoin would have been higher.
Overall, I expect Bitcoin to peak between 12 and 18 months after the halving in April 2024. This implies a bull run price peak between April 2025 and October 2025.
In terms of price, my base case is that this price peak will be 4-8 times higher than the price at the halving. Assuming a price of $30,000 (it could actually be higher), the bull market price peak would be $120,000-240,000/BTC.
If this sounds crazy to you… it’s not. Look how ordinary this price is compared to the most recent halving era:
This will be followed by another bear market, then a period of price equilibrium until the Bitcoin halving in 2028 arrives, starting the process all over again.
My belief in these mechanisms is why I see Bitcoin as the best savings vehicle for the next decade — as Paul Tudor Jones said, “the fastest horse.”
However, most people have no idea what will happen when the next halving occurs in less than a year.
But you know.