We’re three months away from a rare phenomenon in crypto. In fact, it’s only happened three times over the past 15 years.
It’s called the “halving.” And if history is any guide, it will ignite the price of bitcoin.
If you have yet to prepare for this event, today’s essay is for you.
That’s because a clear and predictable pattern has played out prior to each halving.
If you’re aware of this pattern, you can potentially maximize your returns as the next bull market in bitcoin kicks off.
Failure to do so could mean missing out on a 4,200% price surge that bitcoin has averaged in the two years following its past halvings.
Today, I’ll go over what the halving event is… the pattern that emerges before each one… and how you can take advantage of it.
A Supply Cut Set in Stone
When bitcoin miners validate transactions, they receive a reward of newly created bitcoin for their services.
The halving event cuts the reward miners earn in half.
Let me explain…
There can never be more than 21 million bitcoins in existence. The issuance is strictly regulated by computer code.
Each halving reduces supply coming to the market.
As supply decreases and demand remains constant or increases, basic economic principles suggest bitcoin’s price should rise – and by a lot.
The first halving occurred in 2012. The second in 2016. And the third in 2020. The fourth will occur in April 2024.
So next year, the reward miners receive will drop from 6.25 to 3.125 BTC. Over one year, that’ll drop the supply coming to the market from about 337,500 BTC to about 168,750.
This supply decrease creates disinflationary pressure on bitcoin, which fuels its price rise.
You can see that in the chart below. It shows the average price level of bitcoin before and after its previous two halvings.
The orange dot shows where we are today.
The chart is formatted as an index. That means the index value on the date of the halving equals 100.
On average, bitcoin has risen by as much as 1,534% in a little over a year after the previous two halvings.
However, something interesting happens in the months before the halvings.
As you can see, prior to each of halving, bitcoin experienced a sharp price drop.
It’s not clear why. Some speculate it’s driven by miners who want to lock in gains by selling their mined coins before their rewards drop.
Regardless, it’s a pattern we’ve seen play out in the run-up to each halving.
Now, I’m not suggesting a similar drop is destined to occur this time around. Past performance never guarantees future outcomes.
But it’s important to be aware of this pattern if it does end up happening again.
If we do see a double-digit-percent drop in bitcoin over the next few months, it will be an attractive buying opportunity.
Here’s why…
In 2020, bitcoin fell by 26% five months before the halving. Two months later, it suffered another 53% drop.
If you had bought bitcoin six months before the halving, you would’ve made a solid 663% return once it reached a high of $69,000 over the following two years.
However, you could have made 1,307% – nearly double your money – if you had bought at the $4,900 lows two months before the halving.
The same thing occurred in the run-up to the second halving.
Five months before the event, bitcoin experienced a 20% drop down to $368.
If you had bought bitcoin six months before the halving, you would’ve made an incredible 4,112% return once it reached a high of $19,040 18 months later.
However, you could have made 5,074% if you had bought at the $368 lows a month later.
That’s the difference between turning $1,000 into $42,120 and $1,000 into $51,470.
An Avalanche of Demand Is About to Hit a Brick Wall of Supply
The halving will reduce the available supply of bitcoin coming to an already tight market.
That’s because bitcoin HODLers are hoarding their bitcoin. (That means “hold on for dear life.”)
These are the hardcore bitcoin believers. You’ll have to pry bitcoin from their cold, dead hands (or pay them a fat premium to get their coins).
According to data from crypto research firm Glassnode, the number of bitcoin held in wallets with minimal spending history hit a record of over 15.4 million tokens.
By some estimates, another 10% of bitcoin has been lost forever. Others put it as high as 25%.
So bitcoin will become scarcer and scarcer. Meanwhile, demand is about to explode.
As Daily editor Teeka Tiwari had predicted for months, the U.S. Securities and Exchange Commission finally approved 11 spot bitcoin ETFs on January 10.
The list includes Bitwise, Grayscale, Hashdex, BlackRock, Valkyrie, BZX, Invesco, VanEck, WisdomTree, Fidelity, and Franklin.
Combined, these Wall Street titans manage nearly $17 trillion in assets.
What do you think will happen when a flood of capital hits a wall of tight supply? Something has to give.
Think about it this way…
If you knew half of the world’s incoming gold supply was going to disappear in April, what would you do?
You’d drop everything the moment you got that tip and get your hands on as much gold as possible.
The bottom line is this: The halving will happen. And bitcoin prices will explode higher.
The Next Wave of Crypto Profits
Now, the clear and obvious beneficiary to the approval of spot bitcoin ETF is BTC.
According to a Bitwise/VettaFi 2024 Benchmark Survey, 88% of financial advisors interested in purchasing bitcoin are waiting until after a spot bitcoin ETF is approved.
In our view, it’s likely approval of a spot bitcoin ETF would take the BTC price back toward its all-time high near $70,000.
But there’s a niche corner of the crypto market Teeka believes will be next up for their own ETFs. We call them “crypto reward” tokens.
You see, many crypto projects pay out rewards. It’s similar to the way a stock pays a dividend. Instead of receiving cash, though, you receive more of the underlying crypto.
Essentially, you can get paid for backing the disruptive technology that a crypto is developing.
That’s because they offer early adopters the potential for the highest rewards. And we’ve seen this firsthand…
For example, Teeka recommended a crypto payment tokens in September 2019. At the time, it had a reward rate of roughly 7.5% annually.
But the price of this token has grown. And so have the value of the rewards.
Today, the effective reward rate of 42%. At this rate, anyone who followed my initial recommendation would recoup their whole investment in less than three years.
Because of their higher yields, we believe these tokens are the ones Wall Street firms will most likely launch new ETFs for.
Wall Street already has 168 dividend ETFs, with more than $380 billion in assets under management. So we believe it’s going to replicate that with cryptos.
Now, this subsector of the crypto market that accounts for less than 1% of all coins. So for 99.99% of people, this is a brand-new way to invest in cryptos.
So you don’t want to dive into these tokens in without understanding them first…
That’s why Teeka recently held a special briefing on these types of tokens. He believes they’ll help you reach your Freedom Number.
Your Freedom Number is simply the amount of money you need to make to live the life you want.
And because these types of tokens can generate incredible income on top of capital gains – they can help put you on the path to financial freedom.
During his special briefing, Teeka shared details about six tokens with these automatic payouts that we believe will get their own ETFs after bitcoin.
You can stream the replay here.
If you want to put yourself on the path to financial freedom this year, consider adding some crypto income tokens to your portfolio today.
Regards,
Michael Gross
Analyst, Palm Beach Daily