Source: PaxForex Premium Analytics Portal, Fundamental Insight
As of early fall 2024, Bitcoin has experienced a pivotal year marked by significant events, including an April halving and the approval of spot Bitcoin exchange-traded funds (ETFs) in January. Bitcoin enthusiasts are anticipating a substantial price surge in the near future, but the question remains: what lies beyond the expected spike?
Examining Bitcoin's outlook over the next three years raises concerns about the severity of the next "crypto winter." Is this a good time to invest in cryptocurrencies, or should caution prevail?
To manage Bitcoin’s long-term inflation, the process of creating new Bitcoins becomes increasingly difficult and less profitable over time. Miners, who validate Bitcoin transactions and permanently record them in the blockchain, are rewarded for their efforts. Initially, these rewards started at 50 Bitcoins per validated block, but every four years, this reward is halved, reducing the overall production rate. Following the latest halving event on April 19, 2024, miners now receive just 3.125 Bitcoins for each confirmed block.
Meanwhile, the complexity of solving these computational puzzles continues to rise, making the process of mining Bitcoin more expensive and the rewards less lucrative. As a result, while miners face higher operational costs, the financial returns for their efforts diminish.
The role of miners is essential to Bitcoin's functioning. Without their validation of transactions, the network would cease to operate, jeopardizing the cryptocurrency’s viability. Sustaining this costly system requires steady price increases, which historically follow halving events after a period of delay.
Bitcoin tends to follow a four-year price cycle, typically marked by a significant increase about six months to a year after each halving event. However, while these cycles are somewhat predictable, each one has its own unique characteristics.
The halving cycles of 2012 and 2016 both saw gradual price increases over the first year, followed by a dramatic spike and then a steep drop. For example, in the first cycle, Bitcoin surged from $12 to $300 per coin within two years, eventually peaking at just over $1,000 after about a year of reduced rewards. The second cycle, starting in 2016, saw Bitcoin rise from $510 to $6,000 by 2018, with a brief peak of $19,000 around 18 months after the halving.
The third halving in May 2020 came during the COVID-19 pandemic, which accelerated Bitcoin's price growth. Although prices initially surged faster than in previous cycles, a similar pattern emerged, with a decline after a year of elevated prices. Two years after this halving, Bitcoin had jumped from $9,000 to $41,000 per coin.
Now, the fourth halving cycle is underway, and it's already proven unique. Before the April 2024 halving, Bitcoin reached all-time highs of $73,750, driven by the approval of spot Bitcoin ETFs. These ETFs attracted new types of investors, including institutional players and self-managed retirement plans, injecting fresh capital into the market and pushing prices higher.
Yet, four months post-halving, Bitcoin's price is down by 10%. This downturn has been influenced largely by expectations surrounding US Federal Reserve interest rates, as Bitcoin is highly sensitive to these economic changes. As a perceived high-risk asset, anything that makes it more costly or difficult to fund Bitcoin investments can depress its dollar-based price.
It's worth noting that this cycle began from a much higher starting point than previous ones, due to the pre-halving price surge. This early gain might temper future price increases, though it's also possible that the introduction of spot Bitcoin ETFs has permanently elevated the coin’s pricing range. Ultimately, the future trajectory remains uncertain.
In this evolving landscape, Bitcoin is at the center of a heated debate. Critics, like Warren Buffett, argue that the digital currency holds no intrinsic value, while proponents like MicroStrategy's Michael Saylor believe it could fundamentally disrupt global financial systems. While some predict Bitcoin will plummet to near-zero levels, others envision it soaring to $13 million per coin in the coming decade.
A bullish outlook suggests that Bitcoin may double in value by spring 2026, despite the halving-driven gains becoming smaller with each cycle. The impact of ETFs on this process is still unfolding, leaving room for wide speculation. However, Bitcoin appears well-positioned for long-term growth, making it a promising investment for those who prioritize patience over trying to time the market perfectly.
Another "crypto winter" may be on the horizon, but Bitcoin is likely to remain far above its current price levels when it arrives. As always, maintaining a long-term perspective can be crucial for navigating the volatility of the cryptocurrency market.
Time frame: D1
As long as the price is above 50000.00, follow the recommendations below:
- Recommendation: long position
- Entry point: 58244.09
- Take Profit 1: 70000.00
- Take profit 2: 75000.00
Alternative scenario:
If the 50000.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 55000.00
- Take Profit 1: 45000.00
- Take Profit 2: 40000.00
