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Like any commodity—be it gold, oil, or soybeans—Bitcoin's price is highly sensitive to fluctuations in demand. The launch of direct holdings in the digital currency in the form of a U.S. ETF, or spot Bitcoin ETF, in January this year has driven a surge in demand for Bitcoin.
Since then, investors have poured billions of dollars into these ETFs. The inflow of funds into these funds has prompted them to purchase Bitcoin to meet the related demand, thereby driving up the price trend.
However, what sets Bitcoin apart from other commodities is its strictly limited supply, a dynamic that could lead to significant price surges.
The underlying code supporting Bitcoin stipulates a hard cap of 21 million Bitcoins. Over 90% of the supply has already been mined. To expand the supply, computational devices run algorithms to "mine" new coins.
But only about 900 new Bitcoins can be mined per day, a rate expected to decrease after the upcoming periodic event known as "halving" next month. It is estimated that by 2140, when the last Bitcoin is mined, its supply will cease to grow.
"Bitcoin is one of the scarcest assets in the world, and it is becoming increasingly scarce," said Alex Thorn, Director of Research at Galaxy Digital.
However, no one can guarantee that Bitcoin will continue to rise. The current high prices may encourage holders to sell their Bitcoins and lock in profits. Previous Bitcoin bull markets have been followed by devastating crashes: after reaching its peak in November 2021, Bitcoin fell by over 70% in the following year.
Skeptics, including government officials and Wall Street executives who have been observing this bull run, still consider Bitcoin a speculative asset with no intrinsic value.
Economically speaking, Bitcoin's supply is extremely inelastic, meaning it does not respond to price changes. Commodities with this characteristic are prone to sudden large price swings. For example, natural gas producers cannot significantly increase gas production in the short term to take advantage of high prices.
But in the long run, persistently high natural gas prices will prompt drillers to explore new sources of gas. Similarly, when gold prices are high for an extended period, gold miners can undertake costly new mining projects to search for gold in more remote locations.
However, Bitcoin is different. The rules in Bitcoin's code dictate the rate at which miners can introduce new coins to the market, a rate that periodically halves.
In the past, Bitcoin's price has risen before such "halving" events, as cryptocurrency investors anticipate a tighter supply. Bitcoin's creator, known as Satoshi Nakamoto, proposed that Bitcoin should have a fixed maximum supply, writing that such a design would insulate Bitcoin's value from inflation.
Steven Lubka, Head of Private Client Services at investment firm Swan Bitcoin, said: "Fundamentally, Bitcoin doesn't have the ability to bring additional supply to the market.
This makes Bitcoin highly sensitive to demand growth. Since the launch on January 11, new Bitcoin ETFs have been heavily buying Bitcoin.
On that day, nine new spot Bitcoin ETFs began trading for the first time, while an existing fund, Grayscale Bitcoin Trust, also converted to an ETF. Since then, the net inflow of funds into these ETFs has approached $8 billion, with more money flowing into these nine new funds than out of Grayscale.
According to investment research firm ByteTree, as of this past Tuesday, global ETFs or other investment funds held 5% of the world's total Bitcoin supply, up from 4.4% when the aforementioned U.S. ETFs began trading on January 11.
When ETFs buy new Bitcoin to meet investor demand, they often rely on proprietary trading firms like Chicago trading giant DRW Holdings' Cumberland or New York's Jane Street Capital. These firms' cryptocurrency trading desks scour the digital currency markets for large amounts of Bitcoin to meet the funds' buy orders.
With the U.S. Securities and Exchange Commission's approval of the first exchange-traded funds directly investing in Bitcoin, billions of dollars are expected to flow into this market.
Some analysts say that it has become increasingly difficult to obtain Bitcoin from holders with large amounts of Bitcoin. Public blockchain data shows that most of the supply of the approximately 19.6 million Bitcoins globally is held in digital wallets that rarely move the Bitcoin, either because they belong to long-term Bitcoin holders who refuse to sell or because the holders have lost their passwords, making their Bitcoin inaccessible.
In a research report last week, Manuel Villegas, an analyst at Swiss private bank Julius Baer, said that about 80% of the Bitcoin supply has not changed hands in the past six months. Villegas wrote that, coupled with inflows into ETFs and data showing limited inventory of Bitcoins available for sale on exchanges, this "may exacerbate supply shortages."
Others say that there are plenty of sellers willing to sell Bitcoin on rebounds, which may be why Bitcoin's momentum has stalled briefly this week after briefly surpassing its 2021 record.
Rob Strebel, Head of Relationship Management at DRW, said that with large amounts of money flowing into ETFs in recent weeks, Cumberland has not had difficulty finding Bitcoin to meet ETF demand. He said the company has obtained a large amount of Bitcoin from large cryptocurrency investors who bought when Bitcoin prices were low and took the opportunity to profit.
When you see a market going parabolic, like Bitcoin
, it's naturally an opportunity to sell," Strebel said. "Especially when people recall the last bull market in 2021, they will take some chips off the table. |
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Post time 23-3-2024 07:52:12