What will happen to the Bitcoin price in the future? Nobody knows, but there are some historical patterns that may repeat themselves.
People often ask me how Bitcoin will develop in the future. I am always very cautious with predictions, because nobody knows the future, and I am no exception. Bitcoin seems to be a quite irrational animal with extreme mood swings. Sometimes it shoots up, then it suddenly crashes again. The Bitcoin Rollercoaster Guy by Marcus Connor illustrates this behaviour well.
However, one can observe certain patterns in Bitcoin’s seemingly irrational ups and downs. Since I got into Bitcoin in 2011, there have been three cycles of four years each. In the first year, Bitcoin went up slightly, in the second year it went up as well.
In the third year it went up like crazy: in 2013 from about $12 to more than $1,000, in 2017 from about $1,000 to almost $20,000, in 2021 from about $20,000 to almost $70,000. In every fourth year we experienced a sharp crash, usually to around a fifth of its peak value.
2022 was such a bad year. From its all-time high of around $67,000, Bitcoin dropped to just over $15,000. In 2023, this pattern seems to be repeating itself again: the price has recovered to around $30,000 – a small increase for Bitcoin standards.
What is the reason behind this four year cycle? It’s quite simple: roughly every four years – to be precise: every 200,000 blocks – the number of newly created Bitcoins is reduced by half. This is hard-coded into the Bitcoin protocol since the very beginning. The first of this so-called halvings happened in November 2012, when the block reward that a miner receives for finding a block was reduced from 50 to 25 Bitcoin. It was cut to 12.5 Bitcoin in July 2016 and to 6.25 Bitcoin in May 2020.
It is basic economic knowledge that prices must rise if supply is reduced and demand remains the same or rises. This is what happened to Bitcoin three times so far. A few months after each halving, we saw a crazy bull run. It was so exaggerated that a correction was inevitable, but after the crash the Bitcoin price always remained higher than before the price rally. You can see this well in the graph above, which is a logarithmic Bitcoin price chart. Halvings are marked with a blue H.
Galaxy Research has produced this slightly different graph, which is also logarithmic but overlays all three past cycles so you can compare the price curves relative to the halvings. They describe three phases. A hype occurs in the first 500 days after halving. The next 500 days are called the disillusionment phase when prices plummet. The third phase is called accumulation when the price recovers, but still doesn’t reach its former level. You can see that the distances of peaks and valleys to the halvings differ a bit, but the basic pattern is the same.
We are now in this accumulation phase. The next halving will happen in spring 2024 when the block reward will be reduced to 3.25 Bitcoin. Of course, there is no guarantee that the same pattern as in the previous three halvings will be repeated. We can be sure that the supply of newly created Bitcoins will decrease in the future. It would take a majority of Bitcoin node owners to change the halving mechanism and the resulting upper limit of 21 million Bitcoins. This will never happen, as it would lead to a devaluation of their own fortune.
However, the other factor in the equation, the demand, is unknown. Theoretically the Bitcoin network could be hacked. Despite many attempts, no one has ever succeeded, but it is not impossible. Theoretically all governments could work together and try to ban Bitcoin worldwide. Then the demand for Bitcoin could fall and with it the price.
On the other hand, we see big institutional investors such as Blackrock, Fidelity or Invesco moving into Bitcoin, nation states like El Salvador and the Central African Republic adopting it and a growing number of politicians – like US presidential candidates Ron De Santis (REP) and Robert F. Kennedy (DEM) – taking a positive stance towards Bitcoin. These trends suggest to me that the likelihood of rising demand for Bitcoin is high.
Consequently, I wouldn’t be surprised by a Bitcoin bull run reaching a new all-time-high in 2025, followed by a sharp crash in 2026. Is it a good time to invest in Bitcoin? Please draw your own conclusions.
By Aaron Koenig