About once every four years, Bitcoin (BTC-USD) undergoes a “halving” event, where the supply of new Bitcoin is essentially cut in half.
Bitcoin miners are rewarded with new bitcoins for validating transactions and adding them to the blockchain. During a halving event, the reward miners receive for mining new blocks is halved. For example, if miners were receiving 12.5 bitcoins per block before the halving, they would receive 6.25 bitcoins per block afterward.
The purpose of halving is to control the supply of new bitcoins entering the market. Bitcoin’s total supply is capped at 21 million coins, and halvings ensure that the total supply is released gradually over time, rather than all at once, similar to the mining of precious metals like gold.
Bitcoin halvings are designed into the cryptocurrency’s protocol; they are part of its DNA, set to occur after every 210,000 blocks are mined, which translates to roughly every four years.
We’ve experienced three Bitcoin halvings since the inception of cryptocurrencies. The fourth is scheduled for April 2024.
This is extremely bullish for cryptocurrencies because historically, halving events have sparked “boom cycles” in the crypto market.
Theoretically, the reduced supply of new bitcoins can lead to an increase in demand, which should drive up the price.
In practice, this has been the case.
Bitcoin typically enters a boom cycle in the 24 months surrounding a halving event, soaring in the 12 months before and after the event.
The first halving occurred in November 2012. Between November 2011 and November 2013, Bitcoin’s price increased from $2.50 to $1,000.
The second halving was in July 2016. From July 2015 to July 2017, Bitcoin’s price rose from $270 to $2,500.
The third halving occurred in May 2020. From May 2019 to May 2021, Bitcoin’s price jumped from $7,000 to $60,000.
The fourth halving is set for April 2024.
The Fourth Boom Cycle Has Already Begun
Over the past 12 months, Bitcoin has soared from $17,000 to $44,000.
If the pattern holds – and all evidence suggests it will – then Bitcoin should soar to above $100,000 by late 2024 or early 2025.
Of course, that means it’s time to buy crypto stocks.
Bitcoin performed well in the last halving boom cycle, but crypto stocks did even better, especially in the second half of the boom cycle, or the 12 months following the third halving.
From May 2020 to May 2021, Bitcoin rose 560%. However, crypto miner Bitfarms (BITF) saw its stock soar nearly 1,400%, more than doubling Bitcoin’s return.
Another crypto stock, Riot Platforms (RIOT), rose more than 3,800% over the same period, while Marathon Digital (MARA) skyrocketed almost 8,300%.
That means Marathon Digital – a crypto stock – outperformed Bitcoin by nearly 15X in the last halving boom cycle.
Buying Bitcoin to prepare for this Fourth Boom Cycle coming in 2024 is a fine strategy.
But it isn’t the best strategy.
The best strategy is to buy the top crypto stocks.
That’s exactly what we plan to do in January.
We think it’s unwise to rush out and buy crypto stocks right now. They’re too hot and will likely cool off.
We expect a decent pullback in the crypto market in early 2024. On that pullback, we’re going to embark on our first crypto stock buying spree since 2020.
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