If you are familiar with cryptocurrency and keep up with social media and news, you have likely heard of Bitcoin halving. However, if you are new to the world of cryptocurrency or have been living in a bubble, this article can serve as a guide to explain why Bitcoin halving is significant and how you can benefit from this event.

What is Bitcoin Halving?

The mechanism of mining:

To understand what Bitcoin halving is, one must begin with the mechanism in which Bitcoin (BTC) is authenticated. When a transaction or transfer is done, the transfer is approved by a process called mining. Each block is confirmed, and a new one is opened, creating what we call a blockchain.  When the miner approves/authenticates these transactions, the miner receives a reward/incentive, usually in cryptocurrency, in this case, bitcoin. The idea of utilizing mining to approve or authenticate allows for securing the blockchain. Therefore, one can assume that the more BTC mined will increase the reward.

Inflations, supply, and demand:

BTC Halving is how cryptocurrency deals with inflation. Remember inflation is how much it would cost to buy a certain item (food, etc.). Right now, inflation is higher than usual, but it also has gotten better, Economists like a 2% target as a good inflation number. High inflation means goods cost more; lower inflation means goods cost less. Enough of the brief economic lesson, but this is important to understand, everything that is an asset is about SUPPLY AND DEMAND!!  So BTC halving reduces the number of BTC produced, by lowering the number of BTC produced, there is more demand for the asset.

History of BTC Halving:

BTC was never made to be an investment tool but as another option to transfer and receive funds by cutting out the middleman, like banks. Usually, the term is called “decentralization”.  But of course, BTC hitting all-time highs and climbing, has caught the eye of banks, investors, cryptocurrency enthusiasts, and those who have just found out about cryptocurrency. It is safe to say money talks.  The halving event takes place every four years, starting with 50 blocks. In 2009 the reward was 25, then 12.5, 6.25 on May 2020. The next halving will happen sometime around April 14 -15, 2024.   The halving lowers the reward that miners get, so mining companies that cannot approve transactions fast will not be able to keep up and could go out of business.

How Can You Make Money?

With BTC halving the price of BTC will fluctuate, usually higher before and after the halving, then typically there is a pullback, so timing is everything. But I’ll list how I believe you can make money, for which there is still time.

Timing the Market:

Timing is about when to take profits or sell your positions. Rule number one buy low, sell high. You are trading based on market sentiment, if the demand for an asset increases then you would most likely have a bullish view and want to accumulate, hold, and then sell at a higher price to lock in profits. Once the asset becomes lower again you would use the profits gained and reinvest in the asset or other assets.  This also depends on the type of investor you are: Long-term investors will buy low and hold the asset, and short-term investors utilize technical analysis (charts) to determine when to sell the asset for a profit. When you short the market, you believe the market is going to go down, when you go long in a market you believe the market is going to go up.

Dollar Cost Averaging:

This is one of the easiest methods, you pick the amount you want to add to BTC monthly. For example, say every month you want to put in $1,000 in 12 months that would be 12,000 bucks in a year, continuously doing that would have gotten you closer to 1 BTC during the pullback, this eliminates the need to time the market. This helps with the cost basis, meaning the amount the asset costs when you first bought it to the cost over time.

Diversifying Your Portfolio:

When BTC goes up, typically, everything goes up with it. Recently BTC hit an all-time high and so did ETH.  With this strategy, you would invest in multiple crypto assets like XRP, ETH, and other altcoins to profit from, but also mitigate risk. In case one asset underperforms, another asset could increase.  With this strategy you need to make sure the token you are investing in has liquidity, meaning you can get in and out of the asset or trade, either for a profit or a loss. There are a lot of MEME coins or shitcoins that have no value or liquidity, hype increases the asset, but you cannot sell or get out of the position because there is no demand. Investing comes with considerable risks.

Alternative Option Investments:

I like to option trade, so in this case, I targeted the miners of BTC, companies like $MARA, $RIOT, $CLSK, etc. In addition, you could invest in certain BTC ETFs that increase due to the BTC. Some ETFs like $BITO, $ARKB, etc. What I am currently doing is buying an option contract of $RIOT and capitalizing off the gains with BTC when it goes up the miners tend to do well. Supply and demand also factor in. An option is the option to buy 100 shares of the underlying asset, for example, 1 Riot contract is 100 shares, bought at a premium. You have the right but not the obligation to buy the 100 shares or contract, you can sell the contract once the premium goes up for a profit or buy the share at a favorable price. In addition, you could also just buy miner companies like $MARA, $RIOT, or $BITO ETF and ride the appreciation due to BTC increasing. 

BTC direct Derivatives:

Options:

I know that crypto.com allows you to buy BTC option contracts at a premium you pay by buying contracts based on the price movement of BTC. For instance, if you think it is going to go up you would go long or call, if you think it is going to go down you would go short or put. You gain money based on the direction. There is an expiration date that can make buying options difficult, so you must factor in time decay. Time decay means the price of the option contract based on the amount of time you own it (the expiration date). The contract is cheaper the least number of days to the expiration date versus being more expensive the longer to the expiration date.

Futures:

I don’t trade futures, but for completion, I want to explain it for another strategy at least. Options and futures are similar except you are obligated to buy or sell the contract at a future date and margin/ leverage is involved. The same principle, if you think BTC is going to go up you would be in a long contract (call), if you think down you would go short (put). You make money off the premium, buying or selling the contract at a future date. I know a lot of people who are successful at futures, I do not trade futures right now because of the margin/ leverage, maybe one day though. Margin is the initial investment you need to make to leverage trade, whereas leverage allows you to trade a larger financial position while utilizing less of your capital. For example, 20 x leverage would mean for every 1 dollar you invest would be 20 bucks. Therefore, if you invested 200 bucks that means you could profit $4,000 on leverage or lose that much. The risk is too high for me though, but hey it’s still a strategy. Leverage multiplies the amount of money you must invest and then a margin loan is money you borrow to gain or lose profits.

Perceptual Contracts

I do not trade these either, but it is a great strategy to capitalize off BTC movements. The concepts are the same as stated before, the big difference is that perceptual contracts do not have an expiration date, so you can hold the contract as long as you want. The only caveat is you must be able to pay the fees and funding rate.  Depending on how you trade you will either have to pay the index price or perpetual contract price. If you are going long and the index is higher than the perceptual contract, then you would cover the price difference by paying the fund rate. Whereas if the price perceptual contract is lower than the index, you're short (the price of BTC going down) you would pay the fund rate. In any case, the idea is to be going the same way that the BTC asset is going. If you choose to do this, make sure to have your stop-loss and take-profits set, this goes for any trading.

Why Does BTC Halving Matter

This event only happens every four years, and the supply of BTC is decreasing, which will increase the demand. When the demand for something increases, the assets will typically become more scarce and more expensive. BTC is projected to increase in the coming years, this is an opportunity to lock in profits in multiple ways due to one asset. This helps validate the importance of BTC to the crypto space and you could get rich if you understand how to capitalize on this event, Also the next halving will not be until 2028. With less than a month left, it would be wise to start exploring some of these options and strategies. I hope this helps, remember that investing comes with certain risks, I am not a financial advisor, and this article is only for informational purposes. With that said #WAGMI.