It’s been just over a year since Bitcoin‘s (CRYPTO: BTC) last halving, which happened on April 20, 2024. The next halving isn’t estimated to occur until mid-April 2028.
But I’m already looking forward to it for at least three reasons, and I’m already preparing for it. You might want to do the same.
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1. Supply constraints will intensify
If you’re a long-term investor and a long-term holder of Bitcoin, every halving is an intensification of the supply dynamics that make the coin scarce. In other words, halvings need to happen for the price of the asset to continue rising assuming there’s a consistent level of demand.
Halvings are named for the fact that when they occur, which is around every four years on average, the reward that miners get for mining a block of Bitcoin is cut in half. Therefore, those miners have less new supply to sell to the market to provide liquid fiat currency that they need fund their capital expenditures and operations. That means buyers must on average compete more fiercely over the coins that are being offered, driving prices upward.
The halving contributes to scarcity, though it does not guarantee a price rise. The point is that a halving makes it possible for the same pool of buyers to drive higher prices than before; no large influx of new interest in Bitcoin is needed. And as a holder as well as a consistent buyer, all of this is something to look forward to, because it means getting wealthier is probably on the way.
2. Front-running can and will boost prices next time, too
Even if you plan on retaining your coins forever, as I do, it’s enjoyable when the price rises. And the halving has a known impact on prices, but it’s not exactly what the previous section might make you think.
The exact day of the halving is not known in advance, as it simply occurs after every 210,000 blocks of Bitcoin are mined. But it’s possible to formulate a reasonably close estimate of the halving date on the basis of how rapidly blocks are being mined, which automatically adjusts itself every two weeks or so in an attempt to keep the mining time for each block to roughly 10 minutes. Wise investors know that it isn’t necessary to predict the day of a given catalyst to benefit from the upside it might have; it’s possible to just buy the asset well in advance, and then enjoy the results whenever the catalyst happens.
And that’s what tends to happen with Bitcoin: There’s typically a price rise in the 12 to 18 months before the halving is estimated to occur as sophisticated actors front-run the event. Take a look at this chart:
Bitcoin Price data by YCharts
Now consider that before the last halving, halvings happened in May 2020 and July 2016.
I have a long-standing strategy of accumulating Bitcoin at a slow pace regardless of its price, but a more vigorous buying season in preparation for the next halving is just a year and a half or so away. Prices will probably rise during that time. And that period of opportunity is exciting, to say the least.
3. It could set off alt season
Historically, alt seasons tend to occur in the 12 to 18 months after Bitcoin halvings. The term “alt season” refers to a period in which many altcoins see wild rises in their pricing. They’re interesting if you hold altcoins — basically all crypto aside from Bitcoin — because that’s when you see whether the market thinks your investment decision was a smart one or a pipe dream. It’s also the best opportunity most investors get to exit their investments in altcoins that were made at favorable entry points when prices were at rock bottom.
The reason alt seasons tend to coincide with the period after halvings is that newly enriched Bitcoin holders, fresh off the coin’s highs after the halving, take some of their winnings and invest in riskier plays in smaller cryptocurrencies that have the potential to run far. Whether this rationale is going to continue to hold true is difficult to determine, but the timing of past alt seasons roughly fits the narrative.
Because alt seasons are when the market decides which coins and tokens are valuable and which are just hot air, they tend to determine which projects survive and become a permanent part of the crypto ecosystem, and which fade. There’s no guarantee of a coin lasting in the long term simply because its price exploded during an alt season, but the best teams in crypto tend to seize the moment by using the proceeds of their coin’s growth to fund the next steps of their strategic plan.
So, halvings tend to bring a lot of opportunity for investors to find the altcoins that are going to be the strongest investments.
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Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
