Bitcoin
Why This Bitcoin Halving Is Different
Bitcoin’s fourth halving marks a significant milestone, with notable differences every investor needs to know.
Halving is nothing new for Bitcoin (Bitcoin 1.00%). There have been three previous reductions and they all shared some similarities. However, with the passing of the fourth halving, which occurred on the night of April 19th, the stage is set for Bitcoin to enter a new era, as this halving is shaping up to be unlike any before it.
Here are three reasons why the fourth Bitcoin halving is different from the previous three.
Image source: Getty Images.
The institutions are here
In all previous halvings, the only investors were retail people like you and me. But now institutions are here and they are buying the cryptocurrency in the form of the recently approved spot Bitcoin ETFs.
After being sidelined for over a decade, the arrival of spot Bitcoin ETFs has been met with remarkable demand. At one point, these funds were purchasing Bitcoin at 10 times their daily production (around 900 bitcoins). Although demand has cooled in recent weeks, if they were to return to these levels, they would be buying at a rate 20 times the daily supply of Bitcoin now that the halving has passed.
An existing supply shortage led to an all-time high ahead of the halving
At the time of each halving, there were more coins available on exchanges than during the previous one. Let’s unpack this a little. By the third halving in May 2020, there were more than 3 million coins on exchanges. This was 2 million more than in the second halving, which took place in July 2016.
But after the May 2020 halving, something changed. Since then, the number of coins available for purchase on exchanges has plummeted, currently standing at 2.2 million. There are probably a number of reasons for this, but the simplest answer is that Bitcoin has reached a tipping point between supply and demand.
Amid existing supply shortages and the arrival of Bitcoin ETFs, this new dynamic is likely the reason why Bitcoin reached a new all-time high of around $73,000 in mid-March. first time has already reached an all-time high before the halving. It is usually after the halving, when the full effect of the supply reduction manifests itself, that a new all-time high is reached.
Officially better than gold
It was only recently that Bitcoin’s viability as a store of value began to prove itself. During the first eight years of its existence, Bitcoin’s inflation rate was over 10%. But with the most recent halving, Bitcoin’s inflation rate fell below 1%. With just 450 bitcoins being mined per day, the new 0.85% inflation rate will officially make Bitcoin more scarce than what many believe to be the ultimate hedge against inflation – gold.
As this becomes more known, Bitcoin will likely solidify and overtake gold’s supposed role. Unlike gold, which has an unpredictable inflation rate from year to year, we know that only 1.4 million coins will enter circulation by 2140.
Only time will tell how different this halving will be, but the stars appear to be aligning to make it unlike any other. With Bitcoin ETFs in sight here, an existing supply shock, and a miniscule inflation rate, don’t be surprised if Bitcoin beats expectations once again.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The motley fool has a disclosure policy.