Is a Bitcoin Sell-Off Imminent? Insights from History

Bitcoin, denoted as BTC, is the largest cryptocurrency in the world, boasting a market value close to $1.9 trillion. Currently, its price is nearing the $100,000 mark—a figure that seemed unrealistic to many just a few years ago.

However, there have long been investors predicting this milestone. Bitcoin remains a divisive topic. While some experts assert that it could ultimately become worthless, others, like MicroStrategy's founder, Michael Saylor, boldly claim it could soar to an astonishing $13 million per coin by 2045.

This brings us to the pressing question: Is a Bitcoin sell-off on the horizon, or is the cryptocurrency heading for more substantial gains? Historically, Bitcoin has demonstrated a notable pattern over the past decade, one that provides clues about what to expect in 2025.

The Four-Year Cycle of Bitcoin

Bitcoin operates on a digital framework, where transactions are processed through computers. This involves independent third parties who contribute their computational resources voluntarily in exchange for Bitcoin. This process is commonly referred to as mining.

The compensation for Bitcoin miners is structured based on their workload—however, about every four years, this reward is halved during what is known as the Bitcoin halving event.

The significance of this halving event lies in its historical impact on Bitcoin's price. An analysis of the years surrounding these halving events reveals a clear pattern regarding returns. Below is a comparison of Bitcoin's performance in relation to its halving period.

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

*Returns as of 11/25/24 based on YCharts.

From the data illustrated, it is evident that Bitcoin has traditionally seen significant increases in value during and after halving events. This means that, given the pattern, Bitcoin is expected to perform well in 2025, indicating that a sell-off may not be imminent.

A Word of Caution

While historical patterns are informative, they can be misleading. Investors should not presume that future events will mirror past occurrences, as the term “unprecedented” often reminds us. This term signifies situations where past trends do not apply.

For instance, although it is reasonable to forecast a price increase in 2025 based on prior data, unforeseen events could lead to substantial declines. The predictability of Bitcoin's returns in history has largely been driven by its supply and demand dynamics. Approximately every four years, the influx of new Bitcoin from mining is halved, disrupting market balance and typically leading to price spikes. However, the demand side remains unpredictable and can vary greatly, creating opportunities for unexpected downturns.

Past increases in Bitcoin's price have frequently spurred greater adoption among consumers, businesses, and even governmental bodies. Yet, this is never assured. A noteworthy contemporary example includes the pro-Bitcoin stance taken by former President Donald Trump during his campaign, marking an unprecedented moment in political discourse. How will Bitcoin react in 2025 if governmental adoption stagnates after a period of significant anticipation? This scenario remains uncertain.

In summary, while it is tempting for investors to believe that Bitcoin is on a continuous upward trajectory simply based on historical patterns, prudence is essential. There are grounds to be optimistic about its future due to increasing acceptance by the general public and businesses. However, the unpredictable nature of cryptocurrency requires a cautious approach and a healthy skepticism before making investment decisions.

The author holds no position in the stocks mentioned here. Bitcoin continues to be a focal point for many investors.

Bitcoin, Investing, Market