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Down More Than 10% After the Halving, Is Bitcoin Still a Buy?

At the time of the halving on April 19, Bitcoin (BTC -1.09%) was trading around $65,000. It’s now trading under $60,000. This wasn’t supposed to happen, given that halving events have historically been very bullish for Bitcoin. Since its peak of $73,750 on March 14, Bitcoin is down nearly 20%.

That officially qualifies as “dip” territory, so the obvious question becomes: “Should I buy the dip on Bitcoin?” While there is definitely reason to be concerned about Bitcoin’s recent performance, there are two key factors in Bitcoin’s favor right now. Let’s take a closer look.

Investor inflows into Bitcoin ETFs

Admittedly, investor inflows into the new spot Bitcoin ETFs have slowed since their early scorching pace. But that was to be expected. Investors will be a lot more cautious about putting their money into an ETF if the price of the underlying asset is declining. That’s true for any ETF, not just a Bitcoin ETF.

The long-term outlook, however, remains unchanged. Increasingly, investors are viewing Bitcoin as a stand-alone asset class that deserves a place in their portfolio. Right now, the growing consensus is that investors should allocate at least 1% of their portfolios to Bitcoin, and that’s what is fueling the strong investor inflows into Bitcoin. As this percentage increases over time, investor inflows will also increase.

Moreover, according to BlackRock Inc. (BLK 1.41%), the issuer of the popular iShares Bitcoin Trust (IBIT 1.72%), the next wave of institutional money into Bitcoin is coming soon. BlackRock says that three different types of institutional investors — sovereign wealth funds, pension funds, and endowments — are getting ready to put their money into the new spot Bitcoin ETFs. So I’m not particularly concerned right now, given that there is so much institutional money still on the sidelines.

The Bitcoin halving

While the Bitcoin halving is one of the most anticipated events in the crypto industry, it’s arguably one of the least understood. The halving is not a “magic button” that Satoshi Nakamoto presses, and the price of Bitcoin goes up. So anyone expecting the price of Bitcoin to spike overnight on April 19 was bound to be disappointed.

Instead, the halving is the first step in a chain reaction of events. Via the Bitcoin algorithm, the halving reduces the reward paid out to Bitcoin miners by one-half. Another way of thinking about this is that the halving cuts the rate of new Bitcoin creation in half. That instantly makes Bitcoin even more of a disinflationary asset than it already is.

At the same time, the halving boosts the perceived scarcity of Bitcoin. That’s because the maximum lifetime supply of Bitcoin is capped at 21 million coins, and there are already 19.7 million coins in circulation. Put another way, we are getting very close to the point where all the Bitcoin that will ever be created, has already been created. That’s true scarcity, and that’s why Bitcoin is so often compared to gold.

It takes time for these two effects of the halving to have their full impact, though. That’s why the Bitcoin halving cycle generally lasts anywhere from 12 to 18 months. We probably won’t see the full impact of the April 2024 halving until the end of this year, or perhaps even early 2025.

Patience is the key here. Think of the way that U.S. monetary policy works — even after the Federal Reserve announces a policy change, it takes time to see the full impact. The same is true with the halving, which can be thought of as monetary policy for Bitcoin.

Caveats for first-time Bitcoin investors

That being said, Bitcoin’s upward price trajectory is by no means guaranteed. In fact, Standard Chartered Bank recently warned that the price of Bitcoin might dip as low as $50,000 this year. That’s big news, given that Standard Chartered had previously been calling for a $100,000 price tag for Bitcoin by the end of 2024.

But that just goes to show you how volatile the price of Bitcoin can be. For first-time crypto investors, it might seem jarring that the price of Bitcoin can go up or down by 10% in a single 24-hour period. So, before you invest in Bitcoin, you need to be comfortable with this volatility.

But longtime Bitcoin investors know the drill by now: always buy the dip. Over the short term, the price of Bitcoin can and will fall. But over the long term, the price of Bitcoin has nowhere to go but up.

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