Enforced scarcity will be a headwind for so-called digital gold.
The Bitcoin (BTC 0.78%) halving (also known as the halvening) event was, perhaps, grossly underappreciated this year. By pure happenstance, the April 19 halving took place while the cryptocurrency market obsessed over the SEC's approval of spot Bitcoin ETFs.
Yet investors shouldn't downplay the significance of the 2024 Bitcoin halving event. While it already took place over a month ago, it will have ripple effects throughout the year and beyond.
Exactly what happens next is anyone's guess, but Bitcoin HODL-ers should look to policymakers -- and not only the SEC -- for clues. Much like a certain yellow metal, Bitcoin's value proposition stems from its limited supply, and understanding this is the key to HODL-ing with conviction.
Don't try to time the halving rally
Just to recap, April 2024's halving event reduced the reward for mining a block of Bitcoin from 6.25 BTC to just 3.125 BTC. This disincentivizes and consequently slows down Bitcoin mining activity in order to maintain a relatively low supply of circulating tokens.
One could look back at the previous three Bitcoin halvings and try to predict what will happen to the token's price in the months following April's halving event. However, having such a small sample size makes any such predictions almost meaningless.
In other words, don't take the "Bitcoin's next move" concept too literally. By now, the highly efficient and forward-looking market has probably already priced in the anticipated positive effect of this year's Bitcoin halving.
Bitcoin hit a fresh high of around $73,000 in mid-March. This was the first time Bitcoin printed a new all-time high before a halving event. But again, the sample size is too small to draw any statistically meaningful conclusions here. Besides, this time the halving was obscured and overshadowed by the front-page news of the spot Bitcoin ETF approvals.
Despite a small pullback from around $73,000, Bitcoin's rally since the late-2022 low of around $16,000 has been astonishing. Bitcoin tends to flush out the weakest hands before embarking on new bull cycles, so don't be too surprised if the next price move is a pullback.
Regardless of what happens in the near term, stick to the mantra of "time in the market, not timing the market." Just as importantly, know why you're invested in Bitcoin. Most likely, the reason will have something to do with the deliberately limited supply, which is exactly what the halving is all about.
"Digital gold" versus the dollar
While this might not prompt the next move in Bitcoin, the U.S. dollar's trajectory will certainly inform Bitcoin throughout 2024. Bitcoin's price (in America, at least) is measured against the dollar, and the dollar's year-to-date rise definitely hasn't helped Bitcoin.
What could weaken the dollar this year, then? A shift in central bank policy could do the trick. Even just a hint of imminent interest rate cuts from the Federal Reserve should suppress the dollar and provide a significant tailwind to Bitcoin.
Speaking of regulators, legislators, and other bigwigs, there's currently a bill known as the Financial Innovation and Technology for the 21st Century Act, or informally as Fit 21, working its way through Congress. If passed, Fit 21 would increase regulatory clarity for cryptocurrency, which in turn should add a greater sense of legitimacy to Bitcoin.
Both central-bank policy shifts and Fit 21 have game-changing potential for the Bitcoin price. These events shouldn't obscure Bitcoin's appeal as "digital gold," however. Just as there's only so much natural gold on Earth to mine, there will only be 21 million Bitcoins ever produced. Thus, Bitcoin and gold don't just tend to move inversely in price to the U.S. dollar; they also act as hedges against inflation's deteriorating effect on the dollar.
If this year's halving event caused Bitcoin's inflation rate to fall below 1%, then the token could actually be as valid an inflation hedge as gold is. In that context, Bitcoin's next move should take a backseat to its inevitable move against the U.S. dollar. So, whether lawmakers and regulators help or hinder Bitcoin in the coming months, the 2024 halving's legacy will be more favorable supply/demand balance for Bitcoin -- and, perhaps, a good-as-gold holding if the dollar draws down.
David Moadel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
