Where is Bitcoin Going?
Crypto's boom bust destiny explained.
Bitcoin hit all time high again, exceeding USD100,000 momentarily (SGD >130,000). Greater fools (including this author) buying at the previous peak are now elated because they finally broke even. Based on what happened in previous halvings, there could be a little more upside. The chart below from Google shows the full price history (in SGD).
Bitcoin seems to follow a rough four year boom bust cycle largely driven by what is known as halving. The timing of the actual bottom and how high it can skyrocket is difficult to call but based on the price chart above, we can make the deduction that halving is an important event in Bitcoin. Rather than explaining everything myself, I have asked A.I. for help. Isn’t it wonderful we live in this artificial intelligence era?
1. Halving Explained
Bitcoin's four-year cycle, also known as the "halving cycle," is primarily driven by the cryptocurrency's underlying protocol and the economics of its supply and demand. Here are the key description and factors contributing to this cycle:
2. Four Year Cycle
Bitcoin supply started with 10.5m Bitcoins and with 50 Bitcoin as mining reward. Approximately after every four years, the supply of Bitcoin and reward for mining Bitcoin is cut in half. This event, known as the "halving," reduces the supply of new Bitcoins entering the market. It will continue until 2140 when the total supply reaches 21m Bitcoins.
3. Supply and Demand Imbalance
Following a halving event, the reduced supply of new Bitcoins can lead to an imbalance in the market, causing prices to rise. As demand for Bitcoin remains steady or increases, the decreased supply creates upward pressure on prices.
4. Speculation and Market Sentiment
The four-year cycle is also influenced by market sentiment and speculation. Investors, anticipating the halving event and the potential price increase that follows, may buy Bitcoins in advance, driving up prices.
5. Market Maturation and Adoption
As the cryptocurrency market matures and more investors become aware of Bitcoin, demand for the asset increases. This growing demand, combined with the reduced supply after a halving event, contributes to the price appreciation.
6. Volatility
That said, halving increases the volatility of Bitcoin prices. Inactivity during the in-between years have also caused prices to stagnate or go down. The combination of these factors has resulted in Bitcoin's historical four-year cycle, with significant price increases following each halving event:
- 2012 halving: Price increased from around $10 to over $1,000
- 2016 halving: Price increased from around $650 to nearly $20,000
- 2020 halving: Price increased from around $7,000 to over $90,000
- 2024 halving: Prices increased from around $40,000 to ?The above is copied from A.I. and slightly refined by yours truly but as you might be able tell, the A.I. reasoning is at times, still not perfect. But what’s important are the price levels at the end which I have checked to be accurate. However, as with all else in finance, the timing around the bottom and jump in prices are very hard to call.
Here’s something written by another fellow substacker (human) which I thought was good analysis. Please take a look!
Unlike previous halvings, this 2024 one saw the prices jumped before halving actually happened. While the 2016 and 2020 cycles saw the jump in prices about a year (very roughly) after it happened. The magnitude of the price jump is also crazy. Should we expect the same magnitude as the previous halving in 2020, Bitcoin could reach $400,000 or more.
Of course it would not because there is finite amount of money out there. Bitcoin and the total market cap of crypto at a few trillion dollars is already bigger than most listed companies except for the top few (see ranking below). Bitcoin itself is at c.USD2trn, which is quite inexplicable as Bitcoin was basically created out of nothing and generates no cashflow. These trillion market cap companies below generate an insane amount of free cashflow.
Bitcoin prices can go up a bit more (pick a number, my guess for this peak is USD150,000) and then we go down the rollercoaster like past cycles. This is an art. It could be higher or lower. Who knows? Your guess is as good as mine. Then we wait a few years for the next high which will come around the next halving in 2028.
Boom and bust, this is the nature of Bitcoin.
One other signal could come from the newly established Bitcoin ETF markets. Should the fund flows into ETF slows, then it is also a leading indicator that things are about to go south. That said, it is very hard to use these charts because the trends become clear only after the fact.
Some like to compare Bitcoin to gold. Since gold’s market cap is c.USD18trn, Bitcoin at just 2trn still has a lot more room to go, right? No, because gold is an established store of value since human civilization began, like freaking 10,000 years ago. Bitcoin is still a teenager. In desperate times, you can trade gold to get rice in Zimbabwe. Do you think the same Zimbabwean will accept your hot / cold wallet and give you rice?
I would argue that Bitcoin at its current market cap has already gone into its second half, if we use a sports game analogy. We are not in the first innings, we are over foreplay, for those who get better understanding from analogies. In the analysis above by fellow substacker
, he also shared that Blackrock’s Bitcoin ETF exceeded its gold ETF in size!Undoubtedly, the boost is coming from the popularity of Bitcoin ETFs and the market cap is at c.USD100bn. There are also more institutional buying. Some listed companies like MicroStrategy has also shifted its entire cash base to cryptocurrencies. However should such momentum wane, then we have to worry that the party could end soon.
The other big risk is just overall market sentiment turning south. There is currently a lot of euphoria after the presidential election and animal spirits are high up in the air. Tariffs or not, markets just keep going up. The S&P500 hit all time high. Even Singapore’s Straits Time Index is near all time high. It’s inexplicable.
To sum it up, it always pays to be always vigilant because the markets are like dance parties where eventually the music will stop and everything will crash and burn. Crypto crashes will be the most treacherous. So, beware!
This post does not constitute investment advice and should not be deemed to be an offer to buy or sell or a solicitation of an offer to buy or sell any securities or other financial instruments.