Why Cathie Wood Thinks Bitcoin's Upcoming 'Halving' Will Redefine the Crypto Market in 2024

The upcoming halving of mining rewards in Bitcoin (BTC -0.24%) Network is not like the others. Ark Invest mastermind Cathie Wood found a groundbreaking quality in this fundamental update that sets it apart from the first three.

Will this unique event make Bitcoin a better long-term storage system for wealth than investing in gold? Let's have a look.

What Cathie Wood said

In a recent video interview with Yassine Elmandjra, Director of Digital Assets at Ark Invest, Wood revealed a rarely discussed detail of Bitcoin's next halving that could be a game-changer for the cryptocurrency market:

The supply growth rate is expected to be halved to just under 1% per year. Comparing this to gold, gold supply has increased by about 1% per year on average. Bitcoin supply growth will fall below this. (Lightly edited for better readability)

Why is this insight so important?

It comes from the famous idea that prices in a free market reflect the balance between supply and demand. Due to its limited supply and fairly slow new production rate, gold has traditionally been considered an excellent store of value. But now, for the first time, Bitcoin's supply-side growth rate will suddenly fall below gold's inflation rate.

“The steady addition of a constant amount of new coins is analogous to how gold miners expend resources to bring gold into circulation,” says the Bitcoin white paper, which defines how this cryptocurrency works. “In our case, it consumes CPU time and power.”

So the self-proclaimed “open source peer-to-peer money” or digital gold is finally playing the role for which it was designed. That definitely sounds like a groundbreaking event.

Bitcoin’s gold-like stability

The limited supply of Bitcoin is hardly a secret. In fact, its lifespan limit of 21 million digital coins is often cited as a reason to invest in this digital epitome of long-term stability.

19.6 million of these tokens have already been mined, leaving less than 7% of the total supply for future mining efforts. With mining rewards set to halve every four years or so, Bitcoin's growth rate will only continue to slow in 2029, 2033 and beyond. The last Bitcoin is expected to be mined around 2140. After that, mining rewards consist only of transaction fees.

This extremely long-term plan is hard-coded into Bitcoin's software. Changing these growth-limiting parameters would require an overwhelming agreement from supply-side stakeholders to sacrifice the financial stability of their own assets – an unlikely event, especially if Bitcoin actually emerges as a ubiquitous digital alternative to gold.

The impact of the next Bitcoin halving

Until now, Bitcoin halvings have always been a sign of a sharp rise in the price of the cryptocurrency.

For example, one Bitcoin was worth $12 when the premium was first cut in 2012. A year later, the price peaked at $1,170 before falling again. The halving in 2016 caused the price of Bitcoin to rise from $640 to $19,650 in 17 months. The last reduction in mining rewards occurred in May 2020 at a price of $8,600. 18 months later, this price cycle peaked at $67,500.

Past performance is no guarantee of future results, but Bitcoin violates this rule of thumb in some ways.

• The halvings are quite predictable. They will take place approximately every four years and each time will radically change the economics of Bitcoin mining.
• The mining process serves a crucial purpose in processing Bitcoin transactions. Without it, the blockchain comes to a standstill. Therefore, the entire system only makes sense if miners receive enough rewards to run a successful business. And if mining rewards are halved, half as many Bitcoin tokens will be produced with a constant consumption of processing cycles and electricity. Bitcoin miners would go out of business if prices did not increase over time.
• Therefore, halvings almost inevitably lead to higher Bitcoin prices. It is not the only factor at play when market makers determine the real-time price of Bitcoin, but arguably the most important and predictable pattern-forming tool on the cryptocurrency table. The inevitability of this trend will only be broken if Bitcoin itself goes out of fashion and is shut down. So the pattern of dramatic price increases in the months following each halving will continue as long as Bitcoin has a future.
• And the next halving could actually be different, as the inflation rate below gold's annual production increase suggests a groundbreaking level of value-protecting stability.

The crypto market as a whole and Bitcoin in particular are still facing numerous headwinds and challenges. The advancement of digital currencies may stall due to legal and regulatory obstacles, slow adoption of crypto-based services in the consumer market, and unexpected leaps in technology, to name a few potential tipping points. But the steady rhythm of the planned halving of mining rewards will continue regardless, leading to rock-solid stability or the end of the Bitcoin world.

Image source: Getty Images.

Bitcoin deserves a modest investment today

I expect the Bitcoin community to address and overcome these inevitable challenges as they arise. The supply side looks solid as long as the global market can generate steady or increasing demand for this digital asset.

Long term, I see tremendous value in large-scale adoption of digital currencies and blockchain networks, and Bitcoin is the 800 pound gorilla to beat in this sector. Therefore, I suggest adding some Bitcoin exposure to your investment portfolio, but I'm not going all the way into cryptocurrencies just yet – just in case the ambitious gold replacement plan doesn't pan out.

Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers