Bitcoin Halving Event Approaches: Potential for Rally, but Temper Expectations

April is a big month for the crypto world. The next Bitcoin (BTC -2.72%) halving event is happening later this month, and that could lead to a rally in the price of the world's leading cryptocurrency. After already hitting new highs earlier this year, how much higher could Bitcoin go this year? Below, I'll look at how it has performed after previous halving events and what investors should expect.

Investors earned big returns after previous halving events

In a halving event, the rewards Bitcoin miners receive are cut in half. This is to control the supply of Bitcoin and to ensure its scarcity; the total supply is to not exceed 21 million Bitcoins. Scarcity helps to keep the digital coin valuable. Halving events are expected to take place every four years; Bitcoin halved in 2020, 2016, and 2012. Here's a look at what happened to the price of Bitcoin after past halving events.

Data sources: Google Finance, Investing.com

In every previous halving event, investors who bought shares of Bitcoin and held on for multiple months would have achieved some great returns. Here's another table showing what those returns would look like in percentages.

Calculations by author.

What should investors expect this year after Bitcoin halves again?

The next Bitcoin halving event is expected to take place on April 20. Based on how the cryptocurrency has performed in the past, it appears likely that it will rise again. The question, however, is how much of a return investors should expect.

Although the returns after 300 days in previous halving events imply that the cryptocurrency could soar, it's important not to forget some important context.

• In 2012, Bitcoin's low valuation made it easier for the cryptocurrency to surge in value. The halving event was the first time it happened and helped shine a spotlight on the up-and-coming digital currency.
• In 2016, the initial returns were relatively underwhelming. And the price of Bitcoin back then was just a small fraction of its price is today.
• In 2020, meme stocks and risky investments were rallying as there was an influx of money into the economy due to COVID-19 relief programs. Many people used these funds to invest in stocks and crypto, leading to high valuations. And Bitcoin then crashed in 2022, as the markets cooled off.

This time around, going into the halving event, Bitcoin is near its all-time highs. And the stock market has been at record levels as well. There's the risk that there may already be too much optimism priced into Bitcoin and that a halving event may not result in similar gains as in the past for investors. While history does suggest the cryptocurrency could double, given how hot the markets have been this year and Bitcoin's already high valuation, investors should temper their expectations because context is important.

Should you buy Bitcoin before the next halving event?

A halving event may seem like a surefire catalyst for Bitcoin's price to rise higher, but it probably shouldn't be. Investors know that it is coming, so arguably it should be priced into the value of the cryptocurrency already. In the past, the cryptocurrency was priced much lower than it is today and in 2020 and 2021, the influx of COVID relief money gave people more funds to invest. Nowadays, budgets are tighter and economic conditions are far from ideal.

Bitcoin's price may very well rise after the halving event later this month but investors should be careful not to assume that just because it has doubled in the past, it will do so again this year. This remains an incredibly risky asset to hold in your portfolio and you should only consider investing in it if you're comfortable with the risk and the uncertainty that comes with Bitcoin. Buying the cryptocurrency before the next halving event is by no means a guarantee of great returns.