The largest cryptocurrency in the world is Bitcoin, (CRYPTO: BTC) with a market value of almost $1.9 trillion. And as of this writing, the price per Bitcoin is not far from $100,000 – it’s a value that many didn’t think was possible, especially just a few years ago.
On the other hand, other investors long ago predicted a price of $100,000 for Bitcoin. In short, Bitcoin is a polarizing topic. Many smart people claim that the cryptocurrency will eventually become worthless. On the other side of the debate, yes MicroStrategy found and executive chairman, Michael Saylor, who believes Bitcoin will be worth as much as $13 million per coin by 2045.
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So is a Bitcoin sell-off coming or is it headed for more life-changing gains? Well, this cryptocurrency has followed a very predictable pattern over the past decade. And this historical pattern indicates what awaits us in 2025.
Bitcoin is a digital currency and transactions are therefore also digital. Therefore, the system needs computers to process transactions. And independent third parties use their equipment to do this voluntarily. The process is called mining and they offer their services voluntarily because they are paid in Bitcoin.
How Much Do Bitcoin Miners Get Paid? Without delving too deeply into the matter, the protocol sets a certain reward for a certain amount of work. But about every four years, the payments are halved. This is known as the Bitcoin halving.
Let me explain why the halving has historically affected the price of Bitcoin – that’s the most important thing to take away from this discussion. But for now I want to explain it simply How the halving event affected the price.
The table below shows the returns for Bitcoin during the calendar year two years before the halving, the year immediately before the halving, the year of the halving, and the year immediately after a halving. As you can see, the historical pattern is quite clear.
|
Bitcoin half year |
2 years earlier |
Year before |
Year of |
Years later |
|---|---|---|---|---|
|
2016 |
(15%) |
34% |
124% |
1,369% |
|
2020 |
(73%) |
92% |
303% |
60% |
|
2024 |
(64%) |
155% |
132%* |
To be determined |
Percentage of return data from StatMuse. *Returns as of 11/25/24, according to YCharts.
When it comes to the regular cycle, Bitcoin has made big gains the year before, the year of, and the year after a halving. The other year of the four-year cycle represents a negative year.
Because of the pattern shown in the table above, you would expect Bitcoin to have a great year in 2025, even though it already hit an all-time high in 2024. Therefore, it does not appear that a sell-off is imminent.
The problem with historical patterns is that they are devilishly misleading. In reality, investors can never assume that the future will always look like the past. We know this to be true, as evidenced by our English word for this phenomenon: unprecedented.
“Unprecedented” is what we say when something that hasn’t happened before actually happens. Historical patterns go out the window when a precedent is broken.
In other words, you would expect Bitcoin to rise in 2025 because the historical trend says the price rises during the calendar year following Bitcoin’s halving. But there is always room for an unprecedented decline.
In my opinion, the reason Bitcoin returns have historically been so predictable is because the dynamics of supply and demand are predictable. Every four years, the new supply of Bitcoin through mining is halved. This disrupts the balance between new supply and new demand, leading to large price increases. But demand (often via crypto FOMO) eventually picks up again, leading to a sell-off.
The point is that Bitcoin’s protocol only controls the supply of coins in a predictable way. It can’t control demand, which means half of the equation has room for something unprecedented. New Bitcoin Highs in the Past usual lead to more awareness and more adoption by individuals, companies and even governments. But this is never a guaranteed result.
For example, newly elected President Donald Trump campaigned with a pro-Bitcoin message and it is the first time that this has been a major talking point of a US president – unprecedented. What happens to Bitcoin in 2025 if federal government adoption is put on the back burner after expectations build during the election cycle? Investors simply don’t know because this hasn’t happened before.
In conclusion, investors cannot bet on Bitcoin going higher in 2025 simply because the price follows the historical pattern. I believe there are reasons to predict this will increase, including greater adoption by businesses and consumers. But as is always the case with cryptocurrency, investors should understand the dynamics at play and have a healthy dose of skepticism before purchasing.
Consider the following before buying shares of Bitcoin:
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Bitcoin. The Motley Fool has a disclosure policy.
Is a Bitcoin Selloff Imminent? History suggests a very clear answer. was originally published by The Motley Fool
