Is Bitcoin the Best Investment for Next 18 Months?

November 28 2012 was a formative date in the lifecycle of bitcoin. It was the day when the first halving cycle took place, meaning that from that day onwards the reward for mining new bitcoin blocks was halved.

Every four years a new bitcoin halving cycle takes place, in or around the time when 210,000 blocks are mined. The reason this is such a key date for bitcoin followers is because it reduces the rate at which bitcoins are generated, and so the supply of new bitcoins is chopped in half.

The idea behind the halving mechanism that is built into the bitcoin protocol is to better manage inflation and ensure only 21 million bitcoins are ever mined.

With the total supply capped and a flood of capital pouring into bitcoin ETFs, the price of bitcoin has been rising. But if history is a predictor of what’s to come, the future is even brighter than the past.

Bitcoin Gains After Each Halving Cycle

Within a month of the first halving cycle, bitcoin rose by 8%, an amount so modest that it largely went unnoticed. Within 3 months, however, it was up 145% and by 6 months it was up a full 10x.

Then things really got interesting because within 1 year of the halving event, BTC went nothing short of ballistic, soaring by 87x. A year and a half after the key date the exuberance had faded but still BTC was up 45x.

So, were the gains experienced during the first halving cycle a fluke? 

Second Halving Cycle

It doesn’t seem so as evident from the second halving cycle, which began on June 9 2016.

Like the first cycle, the first month produced a gain. This time, BTC rose by almost 2x the amount of the first halving cycle, a full 15%.

As the market likes to do, it cast doubt in followers minds about whether the first cycle was a fluke because 3 months after the second halving date, bitcoin was up by just a paltry 6%, essentially giving back gains accrued in the first month.

And unlike the 10x gain experienced by investors within the first six months of the first cycle, those who held on during the second cycle were up by a more modest 34%.

Still, those gains handily beat the market at the time, and there was more to come with bitcoin rising by more than a double after 9 months and close to 5x within 12 months. 

For those who stayed the course, the most significant returns were generated in the 12 to 18-month period after the second halving date because BTC rose by a full 27.9x.

Third Halving Cycle

Naysayers argued at this point that bitcoin was a fad, and the first two halving cycles were not reflective of the future. And yet the third halving cycle revealed the benefits of holding bitcoin, or HODL’ing as the enthusiasts like to say.

May 11 2020 was the date of the third halving cycle, and within a month BTC had risen by an almost identical amount to that posted during the second cycle, a 14% gain.

Three months later it was up 37% and six months after the May line in the sand, it was up a full 79%.

Within nine months, it had far outperformed the double enjoyed in the second cycle and was up an astonishing 5.4x. By 12 months, it had gained 6.5x and by 18 months it was up 7.8x. 

So what does all this mean for the current fourth halving cycle?

How High Will Bitcoin Go?

If you apply the averages of the second and third cycles, meaningful appreciation is evident. Chamath and his team did some work on what the implied prices for this cycle would be if the past gains were echoed.

Within a month of the most recent halving cycle, bitcoin’s fourth, the implied gain for BTC is $73,110 and rises to around $77,000 within 3 months.

Chamath speculates that the relatively muted gains for the first 3 months of each halving cycle reflect those on the sidelines trying to assess what’s going on and whether the future will repeat.

Perhaps it’s the early adopters getting in first and buying when risk is highest but their lack of collective buying power means they don’t push the price up materially. However, the masses start to get on board thereafter, and that is reflected in the pricing.

The implied pricing suggests that bitcoin has the potential to rise to $99,643 within 6 months, $238,000 within 9 months and $362,000 over a 12 month period.

Chamath then notes that if cycle 3 repeats this time around bitcoin has the potential to rise to $497,000 while the average of cycles 2 and 3 would produce a price target of $1.14 million per coin.

It’s worth sharing the caveat that these are implied prices based on past averages and the 18-month post halving price has actually been falling in percentage terms substantially through each of the cycles. 

In the first cycle, BTC rose by 45.5x within 18 months whereas over the same period in cycles 2 and 3, it rose by 27.9x and 7.8x respectively.

So another take on it is that within 18 months, bitcoin’s price gains were 40% lower in the second cycle relative to the first and 73% lower in the third cycle versus the second. 

If that trend continues it is likely to be lower in the fourth cycle versus the third by anywhere between 40% and 73% meaning a 4.68x gain on the high end from the fourth halving date or a 2.1x gain on the low end, which would place it closer to $130,000 per coin.

With a range from $130,000 for BTC to $1.14 million, the price of bitcoin over the next year and a half remains anyone’s guess. It can’t be overlooked, though, that even the low end figure of $130,000 represents a near double from present levels, and likely beats most other asset classes and the market itself.

Of course, Chamath was careful to observe that his analysis was not financial advice and the figures are only implying what future prices would be if past average returns are to repeat. 

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