Halving could be a huge catalyst for Bitcoin, according to billionaire venture capitalist Chamath Palihapitiya.

Over the first six months of 2024, you’ve probably heard all kinds of ultra-optimistic predictions about where the price of Bitcoin (Bitcoin -3.34%) could be next. International bank Standard Chartered, for example, now believes that Bitcoin could rise to $150,000 by the end of 2024.

This price target is aggressive, but it may not be aggressive enough. Billionaire venture capitalist Chamath Palihapitiya thinks Bitcoin it could reach $500,000 by October 2025. According to Palihapitiya, two main catalysts could make this happen.

Bitcoin Halving

The main catalyst for rapid price appreciation is the reduce by half. Bitcoin recently had its fourth halving on April 19, and the current expectation is that this event will unlock tremendous value over the next year.

Image source: Getty Images.

On each halving, the reward pays the Bitcoin Miners is cut in half. This may not seem like a big deal (unless you are a Bitcoin miner), but it has profound implications for the price of Bitcoin. First, the halving increases Bitcoin’s scarcity. Secondly, it also increases the anti-inflationary nature of Bitcoin, making it even more sought after as a hedge against inflation.

It is the combination of these two factors that has led to truly stratospheric returns for Bitcoin in previous halving cycles. In May 2020, for example, Bitcoin soared from a price of around $8,800 to a (then) all-time high of $69,000 in November 2021.

To model Bitcoin’s future price performance, Palihapitiya analyzed Bitcoin price performance at different time frames of the 2020 halving cycle. During the first three months, Bitcoin’s price increased by “only” a multiple of 1 .37x, as investors tried to figure out what was going on with Bitcoin. But as the effects of the halving began to manifest, the price of Bitcoin skyrocketed a multiple of 6.51x in 12 months and 7.8x in 18 months.

Using these numbers, Palihapitiya says it is possible to construct a potential timeline for how Bitcoin’s price could increase during the 2024 halving cycle. We can likely expect Bitcoin’s price to trade sideways for much of the summer. This marks the first three months of the cycle. But Bitcoin’s price could start to heat up as we head into fall and winter. Next April, the price of Bitcoin could be on its way to $500,000.

Of course, past performance is no guarantee of future performance. Just because Bitcoin behaved a certain way four years ago is no guarantee it will behave the same way today. To some extent, Palihapitiya recognizes this. Given the even larger price gains in the 2012 and 2016 halving cycles, Palihapitiya focused only on the 2020 halving cycle to keep price estimates as conservative as possible.

Bitcoin as a reserve asset

The second key factor is Bitcoin’s growing opportunity to become a global reserve asset. According to Palihapitiya, non-Western nations are increasingly likely to become “dual currency.” This means they will choose to hold their national currencies and Bitcoin.

You’re probably thinking: why would a nation want to hold Bitcoin when it can hold US dollars? Well, let’s consider the situation of the dollar. The US is adding $1 trillion in new debt every 100 days and its budget deficits are becoming worrying. The more debt the US takes on, the more money it needs to print and the less valuable the dollar becomes. Palihapitiya refers to this as the “dollar debasement” process.

Given this context, it is possible to understand why some non-Western nations may no longer want to hold dollars. Case in point: Saudi Arabia is rethinking its petrodollar deal with the United States. This agreement, which has lasted 50 years, is arguably one of the most important pillars of the modern global economy. It forces everyone in the world to buy dollars to buy oil and ensures a constant demand for US debt.

If nations around the world start holding fewer dollars, it could open the door for Bitcoin. Add in the fact that many institutional investors now view Bitcoin as a form of “digital gold” and it’s easy to see the path for Bitcoin to become a reserve asset. At some point, Palihapitiya believes Bitcoin could completely replace gold.

What is the probability of this scenario?

While it is possible to poke holes in the “Bitcoin halving leads to huge price gains” thesis, even skeptics have to admit that there is something fundamentally new this time with the 2024 halving. we had spot Bitcoin ETFs, and that can make all the difference. Any selling pressure in the crypto market could be offset by new investor flows into ETFs.

As a result, I am still bullish on Bitcoin despite its recent indifferent performance since the April halving. If everything goes according to plan, crypto investors could have a lot to celebrate in 2025.

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