Should You Buy Bitcoin Before Halving or Wait? A Smart Investor’s Guide

Bitcoin’s upcoming halving event is all the buzz in the Bitcoin space. But, what is Bitcoin halving? If Bitcoin halving follows historical patterns, buying and selling Bitcoin before halving and selling after could deliver massive returns. But should I buy Bitcoin before halving? The answer is yes, but it’s vital to approach this investment strategy with caution. In this article, we will explore the Bitcoin halving event, what the past halvings can tell us about the next one, and how to make a confident investment decision before the next halving.

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Why is Bitcoin Halving Important?

Bitcoin halving refers to reducing the number of new Bitcoins created and earned by miners by half. Halving happens approximately every four years, or every 210,000 blocks. 

Bitcoin halving is essential because it reduces the supply of new Bitcoins entering circulation. With fewer Bitcoins available, the economic principle of scarcity suggests that the value of Bitcoin should increase over time. This event also creates positive market sentiment that drives up the price of Bitcoin. 

Understanding Bitcoin’s Creation and the Role of Finite Supply in Its Value

Understanding Bitcoin halving helps one know how Bitcoin was created. Bitcoin has a total supply of 21 million. The underlying code ensures that only 21 million Bitcoins will ever exist. Bitcoin’s finite supply is a strong economic statement and supports its value system. 

Bitcoin is distributed through mining. The 21 million Bitcoins are scheduled to be mined through the year 2140, and the last Bitcoin is expected to be mined in that year. At the current emission rate, the unmined Bitcoin will be exhausted before this speculated time. 

Bitcoin Halving: Regulating Emission to Enhance Scarcity and Value

Almost 90% of Bitcoin’s total supply has been mined. About 900 Bitcoins are currently mined per day. The number of Bitcoins emitted per block is regularly reduced to sustain the emission and increase scarcity. 

This process of reducing the Bitcoin emission per block is known as Bitcoin Halving. After a predetermined block height (a number indicating a particular block), the amount of Bitcoin emitted per block is reduced to half the previous number. For Bitcoin, new halving occurs after an interval of 210,000 blocks or 4 years. 

Why Bitcoin Halving is Important 

Bitcoin halving plays a crucial role in limiting the total supply of Bitcoin to 21 million coins. This scarcity is a key factor influencing its price. As the supply gets closer to its finite limit, the economic principle of scarcity suggests that the value of each remaining Bitcoin could increase. 

Analysts are predicting potential future price increases based on historical trends and the diminishing rewards of each halving. Some forecasts suggest a rise to $125,000-$150,000 by 2025, indicating long-term potential despite a possible temporary dip after the halving.

Balancing Optimism and Caution: Navigating Bitcoin’s Bull Market Risks

More optimistic predictions even reach $200,000, promising substantial gains for early investors. However, caution is advised. The surge resembles the 2021 frenzy, raising concerns about a potential bubble. 

High trading activity and open interest indicate a heated market, which could lead to increased volatility and risk. While these signs suggest a strong bull market, they warn of a potential sharp correction if investor enthusiasm becomes excessive.

Global Demand and Caution: Lessons from Bitcoin’s All-Time Highs and Halving Events

Bitcoin’s all-time highs in various currencies, including Euros and British pounds, showcase a global increase in demand. But past cycles advise investors to be cautious. 

The excitement surrounding new highs can quickly turn into panic if the market corrects, as many analysts anticipate. The last Bitcoin halving happened on April 20, 2024, at the block height 840,000. Bitcoin’s block reward was reduced from 6.25 to 3.125. 

Here’s a table of Bitcoin halving dates
 

How Does Bitcoin Halving Affect The Price of Bitcoin? 

Halving is a double-edged sword. For different groups, it means different things. For investors, halving means reducing the frequency of new Bitcoins being generated and less propensity for miners to sell. Historical data indicates a positive effect of the expected scarcity on the investors’ psychology. 

Investors expect a rise in the value of Bitcoin, and more buys could follow. Past mining events have seen positive effects. However, the impact of halving events on Bitcoin price is prone to variations, depending on prevailing market conditions. 

Impact of Halving on Bitcoin Prices and Mining Economics

Building up to the 2020 halving, Bitcoin’s price rose about 40% thanks to investor behavior and the speculations that followed the event. Sequel to the halving, Bitcoin’s value rose to three times its previous all-time high, hitting a new high of $67,000.

For miners, halving ultimately means a reduced reward. Setting up and maintaining a Bitcoin mining facility is costly, and miners expect the block rewards to offset these expenses. 

How Bitcoin Halving Impacts Mining Revenue, Hashrate, and Network Efficiency

When the reward is halved, miners’ revenue is reduced by half. Considering the presiding values and cost of running a Bitcoin mine, many miners might shut down their mining set-up if they cannot maintain the facility with the calculated post-mining revenue. As miners halt their activities, the mining hashrate is expected to drop. 

A decrease in the mining hash rate could slow the Bitcoin network and cause transactions on the blockchain to be executed later than they used to. If Bitcoin’s price rises and miners see profitability in rerunning a mine, hashrate could return to former values. 

What Happens When All Bitcoins Are Mined? 

You’ll certainly wonder how miners on the Bitcoin network will be compensated for guarding the Bitcoin blockchain when the Bitcoin supply has been completely mined in the year 2140. When all Bitcoins are mined, miners’ incentivization will be sustained by transaction fees paid by users of the Bitcoin blockchain. 

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Should You Buy Bitcoin Before Halving?

Bitcoin halving is a significant event that occurs approximately every four years or after 210,000 mined blocks. The next Bitcoin halving is expected to occur in April 2024. When a halving event occurs, the reward for mining Bitcoin is cut in half. 

This means miners receive 50 percent fewer newly minted Bitcoins for validating transactions and securing the network. The impact of halving events on the supply of Bitcoin and miners is profound. It can take time to adjust, and both aspects can impact Bitcoin’s price. 

Supply Scarcity

One of the most notable impacts of halving is the reduction in the rate of new Bitcoin entering the market. With each halving, the issuance rate decreases, making Bitcoin scarcer. This scarcity is often cited as a reason for potential price appreciation.

Mining Economics

Miners are crucial to the Bitcoin network’s security and validation process. Halving affects their revenue as the block rewards they receive are reduced. 

Miners must adapt to the reduced income, which can influence the network’s hash rate (computing power) and mining difficulty. Miners with higher operational costs may be pushed out of the market, leading to potential centralization concerns.

Price Speculation

The anticipation of reduced supply due to halving events can create a sense of scarcity-driven demand among investors. This speculation can contribute to short-term price increases before and after halving events. However, it’s important to note that many factors influence price movements, and halving is just one of them.

Market Sentiment

Halving events often generate media coverage, which can affect market sentiment. Positive sentiment and FOMO can attract new investors to capitalize on potential gains. Conversely, negative sentiment could lead to sell-offs if the expected price increase does not materialize immediately.

Potential for Price Appreciation

Impact of Halving Events

Historical Price Performance after Halvings: Previous halving events have historically been associated with significant price rallies in the following months and years. Substantial Bitcoin price increases followed the first and second halvings. 

While history doesn’t guarantee future results, the pattern of reduced supply and increased demand leading to price appreciation is a compelling reason for some investors to consider buying before a halving. 

Speculation on Scarcity Driving Up Prices

Bitcoin’s supply is capped at 21 million coins, and halvings further slow down the rate of new supply entering the market. As basic economics dictates, the price tends to rise when demand remains constant or increases while supply decreases. This scarcity-driven narrative fuels speculation that halving events could increase demand and price appreciation. 

Long-Term Investment Opportunity

Bitcoin’s Store of Value Narrative

Bitcoin’s decentralized and limited supply nature has led to its reputation as “digital gold” or a store of value. This narrative suggests that Bitcoin could hedge against inflation and economic uncertainty, similar to how gold has been used historically. Buying before a halving could provide exposure to an asset that can potentially preserve purchasing power over the long term. 

Institutional Interest and Adoption

Over the years, institutional interest in Bitcoin has grown, with major companies and investment firms allocating funds to it. Institutions entering the market can contribute to increased demand and price appreciation. Buying before a halving event may offer exposure to potential institutional buying interest that could drive prices higher. 

Timing the Market

Investors often try to time the market by buying assets when they perceive them to be 

undervalued. Some believe that buying Bitcoin before a halving event when there is less supply entering the market may present an opportunity to purchase at a lower price point compared to after the event when price appreciation might have occurred.

While timing the market can potentially lead to favorable purchases, it’s essential to recognize the inherent risks. Bitcoin markets are known for their volatility, and predicting short-term price movements can be challenging. Mistiming the market could lead to missed opportunities or losses if prices don’t align with expectations. 

Buying Bitcoin

Buying Bitcoin before a halving is a decision that requires careful consideration of the potential benefits and risks. While historical trends and economic principles suggest a potential for price appreciation due to reduced supply and increased demand, it’s important to approach such investments with a long-term perspective. 

Factors like Bitcoin’s store-of-value narrative and institutional adoption can add to its appeal. Still, investors should be aware of the speculative nature of Bitcoin investments and the inherent risks involved. Diversification, research, and understanding your risk tolerance are essential when considering any investment, including Bitcoin. 

Cons of Buying Bitcoin Before Halving

Short-Term Volatility

• Historical Instances of Price Fluctuations: Bitcoin’s price has exhibited significant short-term volatility, often resulting in rapid price swings. While halving events are associated with potential price appreciation, they can also trigger heightened volatility as the market reacts to the event. Investors buying before a halving should be prepared for short-term price fluctuations that might not align with their expectations. 
• Emotional Stress on Investors: Bitcoin’s roller-coaster price can lead to emotional stress for investors. Sudden price drops or surges can evoke fear, uncertainty, and doubt, causing some investors to make impulsive decisions that might not align with their long-term investment goals.

Market Manipulation

Due to their significant holdings, large Bitcoin holders, often called “whales,” can influence the market. These whales can strategically execute large buy or sell orders, creating artificial price movements that might not reflect the market’s true sentiment. Such manipulation can mislead retail investors and impact their investment decisions. 

Anticipating price appreciation around halving events can attract malicious actors who orchestrate pump-and-dump schemes. They artificially inflate the price of Bitcoin by spreading hype and attracting investors, only to sell off their holdings at the peak, causing a sharp price decline. These schemes exploit the market sentiment surrounding halving events. 

Regulatory Uncertainty

The regulatory environment for Bitcoin is evolving and can vary greatly from one jurisdiction to another. Governments and regulatory bodies might introduce new rules or restrictions that could impact the use, trading, or legality of Bitcoin. Such regulatory changes can lead to uncertainty and affect market sentiment.

Regulatory uncertainty can create hesitation among investors, particularly institutional ones, who are concerned about compliance and legal risks. Adverse regulatory news can lead to negative market sentiment, triggering sell-offs and price declines. 

What Goes Up Must Come Down

While seeing Bitcoin's potential after a halving can be exciting, some additional context is necessary. Bitcoin's price usually tumbles more than 80% on average two years after a halving.

The reasons behind this phenomenon are lesser known, but this lack of performance is a reminder that Bitcoin is a long-term game. Investors trying to time the market often get burned, and data proves that Bitcoin rewards those who simply buy and hold for the long haul. Substantial data proves Bitcoin's price is cyclical, so it is important to maintain a long enough outlook. 

We know precisely how long your outlook should be: Four years, the exact time between each Bitcoin halving.

Willy Woo, a prominent pioneer of Bitcoin on-chain analysis, found that even if investors bought at the top of each bull market and held those coins for at least four years, the annualized gain was 30%, roughly three times the average return of the S&P 500. In other words, no Bitcoin held for more than four years has resulted in a loss. 

Navigating Bitcoin’s Cycles: Investing Before and After Halving Events

Although data suggests that it is still possible to buy Bitcoin and that it remains an attractive investment before the April halving, investors must remember that Bitcoin rewards those who hold and weather the post-halving declines. The more halvings that pass, the more likely you are to reap the benefits of Bitcoin's dwindling supply growth as each cycle compounds gains.

This is by no means an incentive to try to time markets. It attempts to provide context and insight into Bitcoin's unique cyclical behavior. With a better understanding of Bitcoin, investors can more confidently navigate the ups and downs of each halving. 

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A Trading Strategy Around the Bitcoin Halving

Bitcoin’s halving event occurs every four years, and it’s got a long history of affecting the price of Bitcoin. These events spark significant price increases due to a 50% reduction in the rate at which new BTC can be mined. 

According to Plan B, these periods create a surge in scarcity, which offers optimal opportunity for savvy investors.  A recent report from the expert outlines a trading strategy that could yield profits significantly surpassing those achieved by simply buying and holding Bitcoin. 

What is the Trading Strategy?

Plan B’s new trading strategy revolves around the Bitcoin halving. His model, dubbed the Stock-to-Flow Trading Rule, involves buying BTC six months before the Bitcoin halving and selling 18 months after the event. This strategy aims to exploit Bitcoin’s cyclical behavior. Consequently, it captures the dramatic price increases often seen around the halving while avoiding the ensuing bear markets. 

What Will You Gain From The Strategy?

While Bitcoin halving events are difficult to predict, this strategy has proven effective. According to Plan B, the Stock-to-Flow Trading Rule is not a prediction model but a strategy that utilizes defined buy and sell rules to dictate market participation periods. 

“Bitcoin is at $30,000, so the strategy [anticipates a] 4X in the price. We are awaiting the next Buy Signal and we know already that the halving will be around April 2024, so six months before that is around October. Then [Bitcoin will] enter the market and will stay there for two more years until October 2025, 24 months later,” said Plan B. 

Understanding Bitcoin Market Cycles

Implementing this strategy requires a thorough understanding of the Bitcoin market cycle. According to Plan B, the model identifies the current stage as the early bull market. The subsequent stage, where significant price jumps occur, is anticipated to start around the next Bitcoin halving event, slated for April 2024. 

As Bitcoin enters the final stretch before the next halving, traders eagerly watch for signals indicating the late bull market phase. In previous cycles, the transition to the green stage began shortly after the Bitcoin halving, catalyzing an accelerated bull market.

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