- Bitcoin (BTC-USD) is back to over $40,000 per BTC token, after dipping below this threshold level for a while.
- At around $41,200 it is still down below $48,000 where it was at the end of March, approaching the next threshold, $50,000.
- Bitcoin has weathered the inflation storm fairly well, helping to solidify its role as a store of value.
Recently a Mexican billionaire named Ricardo Salinas Pliego says he has put 60% of his portfolio into Bitcoin. Bitcoin News said that he told the Miami Bitcoin Conference he has put the rest in mining, oil and gas stocks. In other words, he has a lot of faith in the future of Bitcoin as a store of value. Although this is kind of an extreme, it may not be as outlandish as you may think.
For example, inflation is now at 8.5% in the last 12 months. If it starts to eat up capital returns for investors, they may have no choice. They might have to invest in higher-risk categories like cryptocurrency just to preserve capital.
One analyst, who correctly called the May 2021 crypto collapse, says Bitcoin could hit $135,000, according to The Daily Hodl magazine. Most of his thesis relies on technical analysis.
Another analyst covered by The Daily Hodl thinks most altcoins will get hurt in a market turndown. But he thinks that Bitcoin and Ethereum (ETH-USD) will be spared.
However, investors now consider $50,000 the next key trading mark for the crypto. Once it crosses that trading level, a bull market for Bitcoin may return.
Dec. 7 was the last time BTC crossed over the $50,000 mark. That was after it made an all-time high of $67,566 on Nov. 7. If Bitcoin can retrace that level and sustain it, there is a chance it could signal another major upward.
| BTC | Bitcoin | $41,283.89 |
BTC Halving Principles
Unlike gold, which is mainly seen as just a store of value, and which has an increasing source of supply, Bitcoin can be used as a payment mechanism. Moreover, its supply is continuously declining. In what is known as Bitcoin halving, after every 210,000 blocks of Bitcoin are mined, the reward for Bitcoin mining transactions is cut in half.
This happens approximately every four years. It effectively cuts the Bitcoin inflation rate, the rate at which Bitcoin is introduced into the circulating supply. BTC last halved on May 11, 2020, for a block reward of 6.25 BTC. The next halving, when only 3.125 Bitcoin will be rewarded, is forecast to occur on or about March 2, 2024.
That will likely result in a commensurate increase in the price of BTC. With less supply and the same or more demand, the price has to adjust upward to find equilibrium. Moreover, the anticipation of the halving also pushes the price higher. The point is that one year from now and later, BTC will start to experience natural forces pushing it higher.
As a result, investors can expect that BTC is more than just a store of value like gold. BTC has a synthetic mechanism that allows its price to naturally rise over a period of every four years. For example, assuming a price doubles every four years, that actually works out to a compounded average annual gain of 18.92% each year. The proof is very simple. If you take $1.00 and compound it by 18.92% each year, then by the end of year four, you will have $2.00. This is before the forces of supply and demand for the crypto work on the fundamentals of the price of Bitcoin.
Where This Leaves Investors in Bitcoin
Investors should not really compare BTC to gold. It is a financial digital asset that has a source of supply that has an increasingly higher cost of supply. The cost of mining equipment, electricity, regulations, rent and other factors are on the rise.
However, there are fewer miners out there with China outcasting all of its mining operations. Once Ethereum switches to a proof-of-stake for validation, then it’s possible some of its miners will switch to Bitcoin. But this may not be a lot of miners since they will likely move into Ethereum staking.
This means that investors in Bitcoin now can likely expect to see a natural rise in the cryptocurrency over the next two years up until the next halving occurs.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
