Forced scarcity will be a hurdle for so-called digital gold.

O Bitcoin (Bitcoin 1.15%) The halving event (also known as halving) was, perhaps, grossly underestimated this year. By pure chance, the April 19 halving occurred while the cryptocurrency market was obsessed with SEC approval spot Bitcoin ETFs.

However, investors should not underestimate the importance the Bitcoin halving event in 2024. Although it happened over a month ago, it will have ripple effects throughout the year and beyond.

Exactly what happens next is anyone’s guess, but Bitcoin HODL-ers should look to policymakers – not just the SEC – for clues. Very similar a certain yellow metalBitcoin’s value proposition stems from its limited supply, and understanding this is key to HODLing with conviction.

Don’t try to time the halving rally

Just to recap, the April 2024 halving event reduced the reward for mining a block of Bitcoin from 6.25 BTC to just 3.125 BTC. This disincentivizes and consequently slows down Bitcoin mining activity in order to maintain a relatively low supply of tokens in circulation.

Someone could look at the three previous halvings of Bitcoin and try to predict what will happen to the token’s price in the months following the April halving. However, having such a small sample size makes such predictions almost meaningless.

In other words, don’t take the concept of “Bitcoin’s next move” too literally. By now, the highly efficient and forward-looking market has likely already priced in the expected positive effect of this year’s Bitcoin halving.

Bitcoin reached a new high of around $73,000 in mid-March. This was the first time Bitcoin reached a new all-time high before the halving. But again, the sample size is too small to draw any statistically significant conclusions here. Furthermore, this time the halving was obscured and overshadowed by the front page news of the Spot Bitcoin ETF approvals.

Despite a small pullback to around $73,000, Bitcoin’s recovery from the late 2022 low of around $16,000 has been surprising. Bitcoin tends to eliminate weaker hands before embarking on new bull cycles, so don’t be surprised if the next price movement is a pullback.

Regardless of what happens in the short term, follow the mantra of “time in the market, not timing the market.” Just as important, know why you invested in Bitcoin. Most likely, the reason will have something to do with deliberately limited supply, which is exactly the reason for the halving.

“Digital gold” versus the dollar

While this may not lead to Bitcoin’s next move, the trajectory of the US dollar will certainly inform Bitcoin throughout 2024. The price of Bitcoin (in America, at least) is measured against the dollar, and the dollar’s rise in the cumulative of the year definitely hasn’t changed. helped Bitcoin.

So what could weaken the dollar this year? A change in central bank policy could solve the problem. Even just a hint of imminent interest rate cuts by the Federal Reserve should suppress the dollar and provide a significant tailwind for Bitcoin.

Speaking of regulators, legislators and other bigwigs, there is currently a bill known as the Financial Technology and Innovation for the 21st Century Act, or informally as Fit 21, making its way through Congress. If approved, Fit 21 would increase regulatory clarity for cryptocurrency, which in turn should add a greater sense of legitimacy to Bitcoin.

Both central bank policy changes and Fit 21 have the potential to change the price of Bitcoin. However, these events should not cloud Bitcoin’s appeal as “digital gold.” Just as there is a limited amount of natural gold on Earth to extract, only 21 million Bitcoins will be produced. Thus, Bitcoin and gold not only tend to move inversely in price relative to the US dollar; they also act as a hedge against the deteriorating effect of inflation on the dollar.

If this year’s halving event caused Bitcoin’s inflation rate to rise fall below 1%, then the token could actually be as valid an inflation hedge as gold. In this context, Bitcoin’s next move must take a backseat to its inevitable move against the US dollar. Therefore, whether lawmakers and regulators help or hinder Bitcoin in the coming months, the legacy of the 2024 halving will be more favorable supply/demand balance for Bitcoin – and perhaps a share equivalent to gold if the dollar falls.

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