No, Bitcoin Won't Stop at $69K

Halvings, the Fed's pivot, Bitcoin's past rallies, and the current year

“I’ve always been deeply opposed to crypto, bitcoin, etc. The only true use case for it is criminals, drug traffickers … money laundering, tax avoidance. If I was the government, I’d close it down.”

~ Jamie Dimon

It's little wonder why the CEO of the largest bank in the United States, also the world's largest bank by market capitalization, wouldn't be a fan of Bitcoin.

Every dollar invested in Bitcoin is a dollar that's not in a bank.

Bitcoin’s market cap is currently hovering around $1.3 trillion. That’s $1.3 trillion less invested in commercial banks around the word than if Bitcoin didn’t exist.

Unfortunately for Jamie, he might find himself hating Bitcoin even more in 2024.

Earlier this week, I wrote to you about Bitcoin breaking above its all-time high of $69,150 and why the momentum may continue.

As I mentioned in that piece, an ocean of capital is waiting to get into Bitcoin. Whether this will result in $100,000 or $500,000 per Bitcoin, and when it will happen, is anyone’s guess. There is no crystal ball to provide definitive answers. But there are some good reasons to believe that Bitcoin could be on the verge of a major breakthrough.

So, today, I want to unpack those reasons. I've already talked about spot Bitcoin ETFs in these pages, and there are plenty more catalysts I haven't covered. But this time, I'm going to focus on the two most important ones for this year.

Let’s jump right into it.

Bitcoin’s 2024 Halving

I don’t think this will be news for you, but Bitcoin has a mechanism built into its core that reduces the rate at which new Bitcoins are created.

This is known as “halving.”

To be more precise, Bitcoin “miners” receive Bitcoins as a reward for processing transactions. A Bitcoin halving is when that reward is cut in half.

This means that new Bitcoin supply drops by 50%... and it happens every four years or so.

There have been three halving events since Bitcoin’s inception in 2009. And the next halving event is “scheduled” in just over a month.  

What's awesome about "halvings" is that every time Bitcoin has one, its price goes through the roof.

After the first halving in 2012, when the reward dropped from 50 bitcoins to 25, Bitcoin went into overdrive, going up by 8,850% in just 12 months. Then, after the 2016 halving cut the reward from 25 to 12.5 bitcoins, it still surged by 2,870% within 17 months. Even after the 2020 halving sliced the reward to 6.25 bitcoins, Bitcoin jumped by 890% in the next 19 months.

While returns have tapered off in each halving cycle, the fact remains: every time there's been a halving event, Bitcoin's price has soared.

Here's a visual to show you what this looked like...

Now, it's true there's always been a pullback ahead of the upcoming halving historically. But it's also true that we've never before had an ETF in the space pulling billions of dollars of institutional money into Bitcoin on a weekly basis.

This could explain why Bitcoin historically never soared to a fresh all-time high before the halving event (but rather within roughly a year and a half of each of the prior three halvings), yet it did this time.

All this tells me is that with miners' rewards halving to 3.125 bitcoins in April, we could see Bitcoin’s price going to unprecedented levels.

As Doug Casey often says about markets – "absolutely anything can happen".

The Fed's Pivot

The second catalyst for Bitcoin in 2024 comes down to the Fed.

In the past, there’s been a strong correlation between Bitcoin’s performance and the Fed’s interest rate decisions.

As you well know, the Fed manipulates (and distorts) the economy by raising or lowering interest rates.

In early 2019, when the U.S. central bank pumped the brakes on its rate hikes, Bitcoin skyrocketed. It surged over 300% by the end of June 2019.

It happened again during the 2020 pandemic, when the Fed cut interest rates to near-zero.

Here's Doug Casey with some insights about that turbulent time from his recent essay:

The U.S. stock market was crashing, so the Fed fired up its printing press.

Between 2020 and 2021, the Fed’s broadest measure of the money supply, called M2, rose by an astonishing $6.1 trillion. That was a two-year increase of nearly 40%.

For perspective, the U.S. Gross Domestic Product (GDP) is about $23 trillion. So, it was more than one-fourth of what all 332 million people in America produce in a year.

And what did Bitcoin do in response?

It took off again, rallying by over 330%.

You can see that in the chart below…

This makes sense when you think about the bigger picture. Typically, rate cuts drive the hunt for better returns in riskier investments, and Bitcoin falls into this category.

This is one more reason why Bitcoin could be setting up for a substantial upswing in 2024.

Everyone seems to be expecting the Fed to start cutting rates soon this year, including Jerome H. Powell, the chair. As I write this, the futures market is pricing in a 70% chance of 1-2 rate cuts by June.

Yes, the Fed has been tightening since 2022. But you can be sure they'll quickly go back to spending like a drunken sailor once trouble hits.

What could this trouble be?

We can only speculate. But the fact that both gold and Bitcoin are hitting all-time highs simultaneously is probably a sign that all is not well in our financial system.

Here’s Doug again:

This is quite unusual in a high-interest-rate environment, such as this. My hunch is that it points to something seriously broken in our economy, which could become apparent as soon as this year.

Back in 2020 and 2021, when the Fed went off the rails and started printing trillions of new USD units, it wasn't even because we were on the brink of a huge global conflict, like we are now with what's happening in Ukraine.

No, it was all because of a flu-like virus.

This should give you some idea of what the Fed will do when the real crisis strikes.

That's not great news for savers or anyone trying to protect themselves from inflation, but it bodes well for Bitcoin.

Until next time,

Lau Vegys

P.S. Bitcoin's price can be a rollercoaster ride. So, you should not dive headfirst. Instead, consider putting in a fixed amount regularly. Just make sure it's not a sum that would keep you awake at night.