Bitcoin (BTC) has been in existence since Jan 3, 2009, when Satoshi Nakamoto mined the first 50 bitcoins into existence. Today, it seems almost impossible to believe that BTC was practically worthless for the first two years of its existence. Of course, even the most bullish Bitcoin enthusiasts were completely unprepared for the spectacular price increase that would occur over the course of the next decade.
Even though BTC has advanced exponentially since 2009, many crypto experts are forecasting substantially higher prices for the remainder of this decade. Will Bitcoin continue to grind its way higher despite the fact that prices have already increased over 400% during the past six months? Let’s take a closer look.
Obviously, accurately determining the future price of any asset class is incredibly difficult. However, we can improve our forecasting results by examining price patterns from previous bull market cycles. Bitcoin is a difficult asset to analyze because it has only been in existence for a relatively short period of time. Consequently, we have a fairly small sample of data to analyze.
It’s much easier to forecast a market with 100 years of data in comparison to an asset class like cryptocurrencies, with only 10 years of historical data. Despite the fact that BTC has a limited supply of historical data, there does appear to be a reliable price pattern that has emerged within the past decade. Let’s review the data.
Bitcoin Halving Is The “Key” To Future Price Direction
Basic economics teaches us that the price of goods and services is directly influenced by its underlying supply. As the supply increases, prices will decline. Conversely, as the supply decreases, prices will rise. This basic formula is known as the law of supply and demand, which was made famous by Adam Smith in his book, The Wealth of Nations, first published in 1776.
By examining Bitcoin’s price pattern during the past decade, it becomes quite clear that BTC has been heavily influenced by the law of supply and demand since its inception in 2009. For those who follow BTC on a regular basis, you are probably aware that all Bitcoin transactions must be verified prior to being permanently added to the blockchain.
Miners are responsible for verifying the legitimacy of each transaction. In exchange for their work, miners are rewarded with Bitcoin. When Satoshi Nakamoto released the original Bitcoin white paper in October 2008, she/he included a detailed report outlining the reward schedule for Bitcoin miners.
Based on Nakamoto’s white paper, the mining reward would be systematically reduced approximately once every four years. By lowering the mining reward, Nakamoto was essentially shrinking the number of Bitcoin in circulation. Remember, prices will rise as the underlying supply is reduced.
The reduction of mining rewards in the Bitcoin ecosystem is known as a “halving.” So far, the Bitcoin community has experienced three halving cycles since Nakamoto launched BTC in January 2009. The initial mining reward in 2009 was 50 BTC. The reward has been diminished by 50% following each halving date. The current mining reward is 6.25 BTC. This number will be reduced to 3.125 BTC on May 13, 2024.
Did the halving cycles follow Adam Smith’s law of supply and demand by pushing up the price of BTC in the wake of a supply reduction? Let’s review the results.
Halving Dates and Mining Rewards:
- November 28, 2012 – mining reward reduced to 25 BTC
- July 9, 2016 – mining reward reduced to 12.5 BTC
- May 11, 2020 – mining reward reduced to 6.25 BTC
- May 13, 2024 – mining reward reduced to 3.125 BTC
As you can see from the table, the first halving date occurred on November 28, 2012. The price on the halving date was $12.25. 18 months later, BTC had risen to $582.88. In percentage terms, Bitcoin increased by 4,658%. Clearly, the first halving cycle was extremely bullish for BTC.
Let’s examine the second halving date, which officially arrived on July 9, 2016. BTC was trading at $647.62. Once again, the reduction in mining rewards had an incredibly bullish impact on the price, as Bitcoin increased 2,146% over the course of the next 18 months.
The third halving arrived approximately 11 months ago on May 11, 2020, with a Bitcoin price tag of $8,638.11. The 18-month window will close on January 11, 2022. Will the halving cycle create another explosion in the price of Bitcoin? So far, the answer appears to be “Yes.”
BTC has advanced approximately 550% since the halving occurred in May 2020. The average price increase during the previous two halving events was 3,402%.
If Bitcoin follows the same path as the previous two halving cycles, the price will be hovering near $302,500 in January 2022.
Based on the fact that BTC is currently trading at $58,500 this price forecast seems to be wildly optimistic. However, since its inception in January 2009, Bitcoin has recorded several spectacular price increases. Therefore, it’s certainly possible that BTC could be approaching $300K in early-2022.
The fourth BTC halving cycle is scheduled to commence on 13 May 2024, which will reduce the mining reward to 3.125 BTC. Financial historians and investment professionals have noted on several occasions that Bitcoin is the only major asset class that experiences a reduction in the circulating supply on a pre-determined basis.
This explains why BTC has achieved such an explosive price move following each halving date. Professional economists point to the Bitcoin halving cycle as verifiable proof that the law of supply and demand still works as long as speculative markets are allowed to be freely traded without being manipulated by a third party.
Examining Bitcoin with Technical Analysis
Bitcoin’s price action has been extremely bullish over the course of the past several months. Let’s examine a few popular technical indicators in an effort to determine the future price direction of BTC.
Chart 1 below covers six months of recent price action. As you can see from the chart, Bitcoin has generated a series of higher highs dating back to October 2020. This is a classic sign of a bull market. Whenever a speculative asset continues to make a series of higher highs, this is a clear indication that the underlying momentum is heavily in favor of the bulls.
The most recent high was recorded on March 15 @ 61,749. Therefore, in order to maintain the bullish momentum, BTC must penetrate 61,749 within the next few weeks.
Chart 2 includes approximately seven months of historical data. The green line on the chart represents the 50-day simple moving average (SMA) of Bitcoin. In terms of technical analysis, moving averages are one of the most popular indicators within the trading community. They have been used by traders and investors for 120 years, dating back to 1901.
Moving averages can be divided into several different time frames. In regard to Bitcoin, the 50-day SMA has generated the most consistent results based on historical testing.
As you can see from the chart, a buy signal was generated on October 12, 2020, when BTC moved above the 50-day SMA @ 11,093. Bitcoin has remained above its 50-day SMA for six consecutive months. As long as the price stays above the green line on the chart, BTC will continue to remain bullish.
Chart 3 displays four months of recent price activity. Bitcoin is currently trading well above the trendline. In order to drop below the bullish trendline, the price must fall below 48,609. At least for now, this type of price decline is highly unlikely.
Chart 4 contains intraday price action for the past two weeks. BTC has struggled to penetrate 60K. In fact, Bitcoin has made six unsuccessful attempts to exceed 60,000 since March 18. Most likely, BTC will successfully push above 60K within the next few weeks. The momentum is still clearly in favor of the bulls.
Chart 5 includes a list of the important Fibonacci support levels. BTC is currently trading comfortably above the Fib support levels. The first sign of trouble for the Bitcoin bulls would be a daily close below 50,595. It’s certainly possible for BTC to drop below the Fib support level. However, the most likely scenario is a continuation of higher prices.
Based on technical analysis, Bitcoin is clearly in the middle of a raging bull market. All of the major technical indicators are currently forecasting higher prices. At least for now, the path of least resistance is to the upside.