It seems that bitcoin (CRYPT: BTC), after surging over 150% in 2023, has shaken off the frost of the longest crypto winter on record. However, as great as last year was for the world's original cryptocurrency, 2024 is shaping up to be equally impressive.
There are a few reasons for this, but the most obvious and powerful is related to evolving supply and demand dynamics and historical patterns. History doesn't always repeat itself, but it often rhymes. And if something similar to what happened in years past happens in 2024, Bitcoin could have what it takes to reach the coveted $100,000 mark, a gain of more than 120%.
Here's why a six-figure Bitcoin this year shouldn't be ruled out.
Image source: Getty Images.
Half of half of half
One of the best-known qualities of Bitcoin is its finite supply. With a maximum supply of 21 million coins, Bitcoin derives much of its value from the idea that it will become scarcer over time.
But how does Bitcoin preserve this scarcity? The answer is relatively simple: it all comes down to a mechanism built into your code known as halving.
After every 210,000 blocks are added to its blockchain, or approximately four years, the growth rate of Bitcoin supply is halved. Today, the annual growth rate is around 1.75%, but it will drop to a paltry 0.875% in April 2024, when it is halved.
With 19.6 million coins currently in circulation, the halvings ensure that the remaining 1.4 million will gradually enter the market at a decreasing rate until sometime in 2040, the projected year in which the last Bitcoin will have been mined. .
Halvings form the basis of Bitcoin's strong monetary policy and long-term value proposition. But they also have an impact on the more immediate short-term price dynamics.
While there are other factors that affect the price of Bitcoin, the elementary laws of supply and demand play an important role. In years when halvings occur, prices typically rise as demand is forced to compete for more limited supply. Most importantly, however, demand does not need to increase for prices to rise. If demand does not change and at least remains constant, the reduced growth rate will put pressure on the price of Bitcoin.
We can see evidence of this by tracking Bitcoin in years past. During the year in which the halving occurs, Bitcoin rises on average by 128%. While past performance is not indicative of future results, if a similar situation were to occur in 2024, Bitcoin could reach a price of around $96,000. That's close to the six-figure mark, but not quite there.
Bitcoin enters unprecedented territory
On their own, halvings are major events that alter the trajectory of Bitcoin. But the halving planned for April 2024 will be like no other.
For the first time in history, there will be fewer Bitcoins available on the market than in the previous halving. In the past, the available supply of Bitcoin has increased significantly. However, a threshold was crossed when passing the most recent halving in May 2020.
Data extrapolated from the supply available on exchanges suggests that at the time of the May 2020 halving, which reduced the block reward to its current level of 6.25 Bitcoins, demand finally outstripped supply. Since peaking at 3.2 million Bitcoins in March 2020, the number of available Bitcoins has decreased by almost 30% to just 2.3 million. It is the lowest level since March 2018.
There are likely a few factors explaining this phenomenon, but the most likely culprits are the notoriously stubborn Bitcoin holders who never sell. During the crypto winter, long-term holders went through a historic accumulation phase. Even as prices plummeted, die-hard Bitcoin investors continued to purchase coins at what they believed to be a discount. Today, the total number of coins held by long-term investors stands at 14.78 million coins, or approximately 75% of the total circulating supply of Bitcoin.
To the delight of these long-term holders, they are the reason Bitcoin will be in unprecedented territory come April halving. With a lack of available coins on the market and slowing growth in their supply, the price of Bitcoin could skyrocket, although to what extent remains to be seen. But given the magnitude of the supply crisis and the combined impact of the halving, a compounding effect will be introduced that should prove more than capable of pushing Bitcoin past the $100,000 mark.
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RF Fulton has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
