Given the recent increase in the value of bitcoin and expectations of breaking record prices, the decision to invest in bitcoin requires a thorough understanding of market dynamics and the associated risks. Bitcoin has shown significant growth over time, even for those who bought at the highest prices. However, it is very important to understand that past events do not always guarantee similar returns. The cryptocurrency market is known for its volatility, and prices can fluctuate rapidly, so caution is advised, states a statement from Freedom Finance, an international online broker managing the investment platform Freedom24.
The Upcoming Halving, Scheduled for April 29, usually creates optimism among investors and often leads to an increase in the price of bitcoin. Halving occurs approximately every four years, with the first three taking place in 2020, 2016, and 2012. After the first halving in 2012, the value increase in the following year was a staggering 559 percent. The year 2016 was not as successful, but a 284 percent increase is by no means bad.
The last halving, on the other hand, brought an increase in value of an incredible 80 times (8,069 percent) in the following 12 months. This event creates pressure on supply as it slows the rate at which new bitcoins enter the market, and this year’s halving will occur at a time of rising demand, suggesting that the rate of new bitcoin creation will slow down, potentially increasing scarcity and demand.
The launch of a bitcoin spot ETF (exchange-traded fund) is an extremely significant event for the crypto market as a whole and creates an imbalance between supply and demand. Wall Street titans like BlackRock and Fidelity are investing directly in bitcoin and buying more and more available cryptocurrencies. Since the beginning of February, approximately 3,500-4,300 BTC are being purchased daily through spot bitcoin funds traded on the exchange, where daily production is around 900 bitcoins.
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This significant demand exceeds the available supply in the market, driving price increases. A supply shortage is expected to become apparent after April, when only 450 BTC will be mined daily. This imbalance between supply and demand highlights the potential for further price increases in the near future. Investors should keep this supply dynamic in mind when considering their investment strategies in bitcoin.
It is also advisable to consider that upcoming events are likely already priced into the market. The expected reduction in supply and its potential impact on prices may have influenced investor behavior and market dynamics before the event itself. In some cases, when long-anticipated events like the aforementioned halving occur, a “sell the news” phenomenon may happen, where investors sell their positions after the event, leading to a temporary price drop. We saw a similar effect in January 2024, when the launch of the spot ETF led to a sell-off. Therefore, while halving may have bullish implications in the long term (increased investment and rising prices), it is important to recognize that it does not necessarily lead to further price increases in the local perspective.
In conclusion, while the prospects of bitcoin exceeding its all-time high may present an attractive opportunity for investors, it is important to approach the market with caution. The cryptocurrency landscape is dynamic, highly volatile, and constantly evolving, thus requiring vigilant monitoring and adaptability to manage it successfully.
