Bitcoin Market Looks Promising for New Highs After Halving, How Can Beginners Understand Detailed Investment Theories and Risks? This article provides a detailed explanation for beginners to understand various information.
(Bitcoin completed its fourth halving! Rewards reduced to 3.125 BTC, Bitcoin fluctuates around $64,000.)
Background:
PlanB firmly states: The raging bull market is not over, Bitcoin will rise above $300,000 after halving.
Bitcoin’s fourth halving occurred at 8:09 am on April 20th, Taiwan time. The cryptocurrency community and investors have paid high attention to this event, considering it an important milestone. For beginners, understanding Bitcoin halving can not only grasp the cryptocurrency cycle and key knowledge but also be a potential entry point. Compared to other complex cryptocurrencies, Bitcoin’s mechanism is relatively simple and has gained recognition from many international financial institutions and countries. It also carries relatively lower risks, making it the best choice for entry-level cryptocurrency.
This article will introduce the impact of Bitcoin’s major mechanism, “halving,” and briefly explain the profit-making methods that can be understood during halving:
Bitcoin Halving Principle:
Bitcoin halving refers to the halving of Bitcoin block rewards after miners mine 210,000 blocks. The purpose of this mechanism is to effectively control Bitcoin’s supply to prevent inflation. Bitcoin uses a consensus mechanism called “Proof of Work” (PoW), where miners validate transactions by solving complex mathematical problems and record the transactions on the blockchain. This process is called “mining.” In order to encourage miners to continue mining and ensure the security of the Bitcoin network, miners are rewarded with Bitcoin whenever they mine a new block.
Further reading:
6 Ways to Invest in Bitcoin in 2024, Bankless Recommends Beginners to Read This First
Since its issuance in 2009, Bitcoin has halved every four years until 2140, when a total of 21 million BTC will be issued. So far, halving has occurred four times. The table below provides detailed data:
[Image]
Based on the table, it can be observed that after each Bitcoin halving, the price tends to increase significantly. From an economic perspective, when the supply decreases while the demand remains constant or continues to increase, price inflation is a normal phenomenon. The scarcity of Bitcoin also attracts long-term investors because Bitcoin may appreciate in the future. For miners, the halving of mining rewards temporarily reduces profitability, making it difficult for small-scale or low-efficiency miners to survive and eventually be eliminated from the market. This allows the most environmentally friendly and clean energy-focused miners to remain.
Possible Profitable Operations and Risks:
Based on data from the past three Bitcoin halvings, the average price increase from halving to the peak is 4,326%, with an average duration of 480 days. If the fourth halving unfolds as expected, the time it takes to reach the peak after halving may be around August 13, 2025, with a projected price of $162,946. However, considering the decreasing trend in the price increase to the peak, it may not exceed the previous 700%.
During the period from each halving to the peak, we can summarize the price increase brought by Bitcoin halving into three periods: Entry period A, Surge period B, and Downturn period C.
A period:
Perhaps because the market is still digesting the Bitcoin inventory, the price does not change dramatically in a short period of time. This stage is a good time for beginners to enter the market.
B period:
Due to the long-term impact of halving, the permanent decrease in supply, and the depletion of market inventory, the market returns to the fundamentals of supply and demand, and the price starts to rise significantly.
C period:
After reaching a historical high, a macro bubble burst occurs, followed by a continuous decline.
Taking the third halving as an example in the attached image, buying Bitcoin before the end of November 2020, just after halving, may be a suitable time. Not only did it start to rebound from the bottom, but the price in period A only grew slowly, and from then until January 1, 2021, the price began to soar.
Therefore, it can be inferred that the period of about half a year after halving may be an excellent entry point.
However, it must be mentioned that the above description may not necessarily align with the expected results, as external factors will affect future trends. Currently, the Federal Reserve of the United States (Fed) has maintained interest rates at 5.25% to 5.5%, the highest since Bitcoin’s inception. This far exceeds the interest rates during the previous three halvings (0.25, 0.5, 0.25). In a high-interest-rate environment, people are more inclined to keep money in banks, reducing consumption and investment activities. Therefore, the price increase brought by this Bitcoin halving may not be as optimistic as before.
In conclusion, investing always carries risks, especially for beginners who may not have a deep understanding of the investment target. Therefore, when investing, individuals should assess their own financial capabilities and consider various factors to develop a suitable investment strategy.
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