Is a Bitcoin Sell-Off Around the Corner? Insights from History

Bitcoin, represented as BTC, remains the largest cryptocurrency worldwide, boasting a market value of nearly $1.9 trillion. Currently, the price per Bitcoin is approaching $100,000—a milestone that many thought was unattainable just a short while ago.

However, predictions about Bitcoin reaching $100,000 have circulated for years. Bitcoin is a contentious topic; some experts argue that it is on a path towards becoming worthless, while others, like MicroStrategy founder Michael Saylor, project an astonishing value of $13 million per Bitcoin by 2045.

This raises an important question: Are we facing an imminent sell-off in Bitcoin, or is it gearing up for even greater gains? Historical patterns over the past decade reveal a clear trend that could hold clues for the future, particularly for 2025.

The Four-Year Cycle of Bitcoin

Bitcoin essentially operates as a digital currency, where all transactions are conducted online. Computers play a crucial role in processing these transactions, and independent parties use their own machines to help with this, a process known as mining. Miners are compensated for their efforts in Bitcoin.

How is the mining compensation structured? To simplify, the protocol sets a specific reward for completing designated tasks, but every four years, this reward is halved in an event known as the Bitcoin halving.

This halving event has historically influenced the price of Bitcoin significantly. Below is an overview of Bitcoin's returns during the four-year cycle leading up to and following halving events:

Bitcoin Halving Year	2 Years Before	Year Before	Year of	Year After
2016	(15%)	34%	124%	1,369%
2020	(73%)	92%	303%	60%
2024	(64%)	155%	132%*	TBD

*Returns as of November 25, 2024.

As shown in this table, Bitcoin has historically performed well during the year leading up to the halving, the year of the halving, and the year following it. The year between halvings typically sees a downturn.

This suggests that Bitcoin could experience a prosperous year in 2025, even after potentially breaking records in 2024. Thus, the likelihood of an imminent sell-off seems low.

Understanding the Larger Picture

However, it's essential to acknowledge the limits of relying solely on historical trends. While patterns can provide insights, they can also be misleading. Unexpected events can disrupt anticipated outcomes.

The notion of "unprecedented" applies here. When something happens that has never occurred before, it can throw historical patterns into disarray. For instance, the expectation for Bitcoin to rise in value in 2025 hinges on past trends, but unforeseen downturns could occur.

One reason for Bitcoin's predictable performance in the past relates to its supply and demand dynamics. Each halving cuts the new supply of Bitcoin in half, creating a temporary imbalance that often drives prices upward. However, the demand side can fluctuate unpredictably, leading to sell-offs.

Importantly, while Bitcoin's supply is rigorously controlled, demand can be unpredictable. In the past, rising Bitcoin values have generally led to wider adoption—by individuals, companies, and even governments—but this outcome is never guaranteed.

For instance, during the campaign, Donald Trump endorsed Bitcoin. This was a significant and unprecedented moment for a U.S. presidential candidate. However, it's uncertain how Bitcoin will be received post-election if governmental adoption slows down.

To sum up, while there are reasons to anticipate Bitcoin's growth in 2025—such as increased adoption by consumers and businesses—investors shouldn't rely solely on historical patterns. It's always wise to stay informed about the dynamics of the market and approach investments with caution.

Bitcoin, Investment, Market