Bitcoin operates in four year cycles based around a halving event. Basically, a halving event occurs when the amount of bitcoin awarded to mining a block is cut in half.
This halving event occurs every 210,000 blocks, which works out to about every four years.
Typically, the price of bitcoin increases because demand stays steady while the new supply is cut in half. However, some have wondered if this is the last cycle of Bitcoin bull runs caused by halving the mining awards.
In our opinion, this is likely not the final cycle for Bitcoin. In fact, Bitcoin likely has a few more cycles to go before the price stabilizes.
Bitcoin Halving Cycles – Explained
First, we will explain Bitcoin halving cycles. This is one of the most important parts of Bitcoin in relation to the price of Bitcoin.
In fact, it’s the reason that Bitcoin has experienced such a tremendous price increase since its inception. The halving cycle also explains every single Bitcoin bull run that Bitcoin has experienced.
To keep things simple, Bitcoin operates on a decentralized public ledger blockchain, which means that all transactions are public. The decentralization means that the network is powered by independent users called miners.
These miners use high-powered computers to solve problems that power transactions across the blockchains. The problems are called blocks. And the reward for solving (read: mining) a block at the time of writing is 6.25 bitcoin.
It’s important to note that mining is the only way new bitcoin can be added to the blockchain. That reward is halved in 210,000 block cycles, so the new supply of Bitcoin will always decrease over time.
Note: Bitcoin started with a 50 bitcoin reward for mining a block – it’s now at 6.25 bitcoin per block.
The next section will explain why this halving event is extremely relevant to the price of bitcoin.
Demand Must Stay Steady or Increase
One of the most basic rules of economics states that if supply decreases and demand stays steady (or increases), then the price of the underlying asset will increase.
In terms of Bitcoin, the new supply of bitcoin decreases every 4 years due to halving. The demand for bitcoin has only increased since its inception.
It’s also important to remember that people lose bitcoin all the time for various reasons. The most frequently cited example is people losing their private keys. These bitcoin are also removed from the total supply because that bitcoin can never be accessed again.
Due to those two reasons, the new supply of bitcoin is always decreasing. Either due to the award for mining being cut in half or users losing access to their Bitcoin wallet.
As we’ve seen over the past 11 years, demand for Bitcoin has only increased as well. It’s especially notable in this bull run because the amount of institutional investors entering the space has increased. Grayscale Capital, PayPal, Rothschild Investment Corporation, ARK Investment Management, and countless others.
The institutional investors are extremely important because institutional investors have the capital to buy up a lot of the supply of bitcoin.
This is only the beginning, too. Institutional investment in bitcoin is only expected to increase as Bitcoin becomes more popular.
Another extremely important point about Bitcoin cycles is that Bitcoin is a deflationary asset. The buying power of it increases, not decreases, over time.
This makes it highly unlikely that is the final cycle for Bitcoin. The price can only go up assuming the demand stays steady for it.
On the other hand, fiat currency is an inflationary asset. Central banks can print as much fiat currency as they want, which increases the supply.
A good comparison is this: If you leave $100 under your mattress (or in your bank account) for 20 years, then that $100 will buy you much less than it bought when you placed it under your mattress.
Bitcoin, on the other hand, should increase in value if you do not touch it for 20 years. It has already increased in value since its launch in 2009.
Are halving cycles built into the price of Bitcoin?
It has been suspected that halving cycles are “priced in” to the price of Bitcoin. For instance, the halving event will not typically have much impact on the price of bitcoin because everyone expects it.
This is true – halving events typically do not result in a large increase to the price at first. However, the price typically increases over the 12 to 18 months after the halving event.
Why do some people think this is the final cycle?
People believe this is the final cycle of Bitcoin because, well, that’s what happens during every bull run. People see a tremendous price increase and think, “Bitcoin can’t possibly go higher.”
Unfortunately for them, Bitcoin always goes higher. Now, can this be the final cycle for Bitcoin?
Sure, it’s possible. But the fact that the current block reward is 6.25 bitcoin means that there are still a lot of halving cycles before the price will stabilize.
In our opinion, the people claiming this is the final bitcoin cycle are newbies to Bitcoin. They likely do not understand halving cycles or that institutional investors have not even come close to fully adopting Bitcoin.
Bitcoin still has a long way to go before the final cycle.
Fiat Currency Is On The Way Out
Our final point is the most controversial and the biggest longshot, but it seems more and more likely every single day:
Fiat currency is on the way out. Again, this is becoming more and more apparent as Central Banks continue printing money and lowering interest rates to keep economies afloat.
This system will eventually falter at some point. And at that point, a new alternative will emerge.
On a related note, many average investors are losing faith in the future of the United States dollar and fiat currency in general. Institutional investors are also losing faith and searching for more returns in alternative spaces such as cryptocurrency.
This loss of faith in fiat currency is sure to keep the demand for cryptocurrency at a steady rate and most likely increase the demand.
Well, that covers it for the future of Bitcoin. In summary, this is not the final cycle for Bitcoin. It’s not even close to the final cycle of Bitcoin in our opinion.
There are still a lot more cycles left on Bitcoin before the price finally stabilizes, which is great news because the price will only increase as more and more cycles occur.