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On Tuesday, March 5th, the price of Bitcoin briefly surged to a previous all-time high of $69,000. While the immediate cause of the rise was the inflow of funds into the US-listed spot Bitcoin ETF, the marginal demand ultimately reflects investors' interest in Bitcoin as an alternative "store of value" and decentralized computing network.
Active traders' positions in Bitcoin now appear to be quite long. The valuations of Ethereum and most other tokens remain below the highs of the previous cryptocurrency cycle.
If the macro market background remains favorable, we may see further increases in token valuations, but macro factors could also be unfavorable.
On Tuesday, the price of Bitcoin reached an intraday high of $69,325, surpassing the previous high of $69,000 in USD terms since November 10, 2021 (Chart 1). Several weeks ago, the price of Bitcoin had already reached historic highs when calculated in other major currencies such as the euro, yen, and renminbi. Since touching a low of $15,600 on November 21, 2022, the price of Bitcoin has risen by approximately 330% in USD terms. Additionally, as the number of circulating coins gradually increases over time, the market capitalization of Bitcoin has slightly increased during the same period (+340%).
Why has the price of Bitcoin rebounded so quickly? Grayscale Research believes that the recent price increase is directly attributable to the demand for spot Bitcoin ETFs listed in the United States. Since their launch on January 11, these products have accumulated net inflows of nearly $8 billion, far exceeding new issuances. We believe that the growth in ETF demand, combined with the limited increase in Bitcoin's new supply, may have led to the rise in Bitcoin prices. While spot Bitcoin ETFs provide a new product structure for cryptocurrency investments in the United States, the marginal demand for Bitcoin ultimately reflects investors' interest in Bitcoin as an alternative medium of exchange and decentralized computing network.
We believe that Bitcoin is a macro asset that can compete with the US dollar and physical gold (two traditional "store of value" assets). The Federal Reserve has indicated that it may cut interest rates this year, and neither of the two US parties seems focused on controlling the massive budget deficit during peacetime. Falling real interest rates and rising public sector debt could depress the value of the US dollar and support competing assets, including Bitcoin. Additionally, for some investors, Bitcoin may be more advantageous than physical gold because it is easy to carry: as long as the holder has access to the internet and private keys, Bitcoin can be used anywhere in the world. We believe that the growth in demand for Bitcoin primarily comes from investors' concerns about the medium-term prospects for the US dollar and their search for alternative "store of value" assets. It is worth noting that the price of physical gold, when calculated in USD terms, also reached a new high on Tuesday.
Furthermore, over time, technological advancements have expanded the potential use cases of the Bitcoin network. Ordinals, which began inscribing non-fungible tokens (NFTs) onto the Bitcoin network in December 2022, has rapidly evolved into one of the largest NFT networks by volume (Chart 2). The emergence of Ordinals not only encourages new users to try Bitcoin but also stimulates new innovations from those who see potential use cases in other areas, such as trustless Bitcoin-collateralized stablecoin loans and more Bitcoin usage in decentralized applications. Given the rising transaction fees on the main chain, multiple Layer 2 projects have begun development on Bitcoin to improve scalability and use cases. There is evidence of increasing adoption: the total locked value has increased from $160 million since the third quarter of 2023 to $2.7 billion, a 15-fold increase in just a few months.
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Post time 15-3-2024 09:33:44