Bitcoin's fourth halving marks a significant milestone, with notable differences that every investor needs to know.
Halving is nothing new for Bitcoin (BTC -0.91%). There have been three previous halvings, and they all shared some similarities. However, with the passing of the fourth halving, which occurred on the evening of April 19, the stage is set for Bitcoin to enter a new era, as this halving is shaping up to be unlike any before.
Here are three reasons Bitcoin's fourth halving is different from the past three.
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The institutions are here
In all previous halvings, the only investors were retail folks, like you and me. But now the institutions are here, and they are buying the cryptocurrency in the form of the recently approved spot Bitcoin ETFs.
After they were sidelined for more than a decade, the arrival of spot Bitcoin ETFs was met with remarkable demand. At one point, these funds were purchasing Bitcoin at 10 times its daily production (roughly 900 bitcoins). While demand has cooled in the last few weeks, if they were to return to those levels, then they would be buying at a rate 20 times greater than Bitcoin's daily supply now that the halving has passed.
An existing supply shortage led to an all-time high before the halving
At the time of every other halving, there were more coins available on exchanges than there were during the previous one. Let's unpack that a little. At the third halving in May 2020, there were more than 3 million coins on exchanges. This was 2 million more than at the second halving, which occurred in July 2016.
But after the May 2020 halving, something changed. Since then, the number of coins available for purchase on exchanges has plummeted, sitting at 2.2 million today. There are likely a handful of reasons for this, yet the most simple answer is that Bitcoin hit a tipping point between supply and demand.
Amidst an existing supply shortage and the arrival of the Bitcoin ETFs, this new dynamic is probably why Bitcoin hit a new all-time high of roughly $73,000 in mid-March, the first time it ever hit an all-time high before the halving. It is usually after the halving, once the full effect of the supply reduction manifests, that a new all-time high is hit.
Officially better than gold
It was only recently that Bitcoin's viability as a store of value started to prove itself. For the first eight years of its existence, Bitcoin's inflation rate was upwards of 10%. But with this most recent halving, Bitcoin's inflation rate fell below 1%. With only 450 bitcoins being mined per day, the new inflation rate of 0.85% will officially make Bitcoin scarcer than what many believe is the ultimate inflation hedge -- gold.
As this becomes more well-known, Bitcoin will likely solidify itself and overtake gold's supposed role. Unlike gold, which has an unpredictable inflation rate on a year-to-year basis, we know that there will only ever be 1.4 million coins to enter circulation until 2140.
Only time will tell just how different this halving will end up being, but the stars appear to be aligning to make it unlike any other. With spot Bitcoin ETFs here, an existing supply shock, and a minuscule inflation rate, don't be surprised if Bitcoin surpasses expectations once again.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
