The intense activity in the Bitcoin market is a prime illustration of the fundamental principles of economics, notably supply and demand. The daily purchase rate of bitcoins is currently higher than the rate at which new coins are being created. The recent introduction of bitcoin exchange-traded funds (ETFs) in the United States, which have attracted significant investor interest, is mainly responsible for the rise in demand this development has caused.
These exchange-traded funds (ETFs) have accumulated an average of 3,500 to 4,300 bitcoins daily since the beginning of February. This is significantly higher than the Bitcoin network’s daily output of 900 coins. The limited supply of bitcoin cannot match the ever-increasing demand, according to Zach Pandl of Grayscale Investments, which naturally causes prices to rise.
As of this Thursday, the price of bitcoin has surpassed $63,000, bringing it closer to its all-time high of approximately $69,000, which occurred in November of 2021. At the beginning of Friday morning, it was trading at around $62,220. It was the most spectacular monthly gain for the cryptocurrency since December 2020, when its value increased by 44% in February.
The upcoming “halving” event, which will occur in two months, may put additional strain on the supply. A halving of the coin supply occurs every four years, according to the design of Bitcoin, which is credited to the mysterious Satoshi Nakamoto. Following the halving, the daily arrival of new coins will decrease from 900 to 450, which may result in an even more significant price increase.
It is impossible to raise the supply of bitcoin to meet the demand, according to Mark Connors of 3iQ, who feels that we are currently in the best possible situation. A stunning estimate of $350,000 to $450,000 per coin is anticipated for the next year, according to 3iQ, which projects that the Bitcoin price will reach between $160,000 and $180,000 this year. Even though Matthew Sigel from VanEck acknowledges that these statistics may now be outdated, VanEck maintains a more conservative estimate of $80,000 for 2024.
Several factors contribute to the current lack of Bitcoin supply, and ETF demand is just one of them. As an illustration, the United States government is in possession of 215,000 Bitcoins, a collection accumulated through a variety of seizures, including the hacking of Bitfinex in 2016. There is now no attempt to dispose of this stockpile, which results in a reduction in supply; however, this situation may change if the government decides to compensate victims, possibly through sales.
Another large accumulator is MicroStrategy, which recently increased its Bitcoin holdings by 3,000 BTC, increasing the total number of Bitcoins to 193,000 BTC, in the neighborhood of $11.8 billion.
According to Sigel, who works for VanEck, as the value of Bitcoin continues to rise, institutional investors may decide to cash out some of their winnings to rebalance their portfolios. This action could alter the supply-demand dynamics that are now in place.
The most recent spike is also driven by psychological factors, such as worries about losing out on something. Taking this into consideration, Sam Stovall of CFRA Research believes that it indicates investors’ readiness to accept risks.
The use of exchange-traded funds (ETFs) has made investing in Bitcoin easier, particularly for individuals who are less knowledgeable about technology, as Eric Rosengren, a former president of the Federal Reserve Bank of Boston, mentioned. On the other hand, he stresses that Bitcoin’s speculative nature has not changed because it does not produce any benefits.
