2024 Bitcoin Market Analysis: Supply and Demand Imbalance and Institutional Funds Getting on Board Drive Price Surge

The cryptocurrency market is showing an extraordinarily booming performance in 2024, with the increase in Bitcoin being particularly astonishing. In just the past month, the price of Bitcoin has risen by over 50%. What are the reasons behind this crazy market performance? Can this momentum be sustained? Let's analyze it in depth.

The rise in the price of any asset is inseparable from a decrease in supply and an increase in demand. We will analyze this in detail from the perspectives of supply and demand.

supply side

As Bitcoin continues to halve, the supply-side impact on prices is gradually weakening, but we still need to pay attention to potential selling pressure:

According to the consensus mechanism, less than 2 million new Bitcoins are produced. Moreover, the issuance rate is about to be halved again, which will further reduce new selling pressure. Observing miner accounts, which have consistently remained above 1.8 million, indicates that miners do not have a significant selling inclination.

On the other hand, the number of Bitcoins held in long-term accounts continues to grow, currently around 14.9 million coins. The truly high circulating supply of Bitcoins is very limited, with a market value of less than 350 billion dollars. This also explains why a continuous daily purchase of 500 million dollars can lead to a significant increase in Bitcoin prices.

demand side

The increase in demand mainly comes from the following aspects:

1. The liquidity brought by ETF
2. The wealthy hold asset value growth
3. Financial services are more attractive than short-term investments.
4. For funds, Bitcoin can be bought incorrectly but should not be missed.
5. Bitcoin is the core of the cryptocurrency market.

ETF: A Unique Catalyst for Bitcoin's Current Bull Market

Bitcoin ETF has been approved by the SEC, officially entering the traditional financial market. Compliant funds can finally flow into Bitcoin, while in the crypto world, traditional financial funds can only flow into Bitcoin.

The deflationary nature of Bitcoin makes it easy to form a Ponzi structure and a FOMO effect. As long as funds continue to buy in, the price of Bitcoin will keep rising. Funds holding Bitcoin will see higher returns, attracting more capital to enter, creating a virtuous cycle. On the other hand, funds that have not bought Bitcoin face performance pressure and may even experience capital outflows. This model has been operating in the real estate market on Wall Street for many years.

Bitcoin is more suitable for this Ponzi scheme. In the past month, the average net buy-in on each trading day was less than 500 million, yet it brought more than a 50% increase. This is just an insignificant amount of buying in traditional financial markets.

ETFs have also enhanced the value of Bitcoin from a liquidity perspective. The global scale of traditional finance (including real estate) reached approximately $560 trillion in 2023, indicating that the liquidity of traditional finance is sufficient to support such a scale of financial assets. The liquidity of Bitcoin is far less than that of traditional financial assets, but the access to traditional finance can create liquidity conditions for Bitcoin that lead to higher valuations. It is worth noting that this compliant liquidity can only flow to Bitcoin and cannot flow to other crypto assets. Bitcoin no longer shares the same liquidity pool with other crypto assets.

Higher liquidity means that assets have higher investment value. Only assets that can be realized in a timely manner can carry greater wealth. This leads to the next point:

The Bitcoin preferred by the rich will inevitably become more expensive.

According to market research, billionaires in the cryptocurrency space typically hold a large proportion of Bitcoin during a bull market, while mid-level or below-average investors often hold no more than 1/4 of their positions in Bitcoin. Currently, Bitcoin's market capitalization accounts for 54.8% of the entire cryptocurrency market. If the proportion of Bitcoin held by people around you with a similar wealth level is far below this number, then Bitcoin is likely concentrated mainly in the hands of the wealthy and institutions.

Here introduces a phenomenon: the Matthew Effect - assets held by the rich will continue to appreciate, while assets held by ordinary people may depreciate. If there is no government intervention, the market economy will inevitably exhibit the Matthew Effect, where the rich get richer and the poor get poorer. This is not only because the rich may be smarter and more capable, but also because they naturally possess more resources. Smart people and useful resources and information will naturally seek cooperation around these wealthy individuals. As long as a person's wealth is not purely obtained by luck, a multiplier effect can form, leading to increasing wealth. Therefore, things that conform to the aesthetics and preferences of the rich will inevitably become more expensive, while things that conform to the aesthetics and preferences of ordinary people may become cheaper.

In the cryptocurrency market, the wealthy and institutions may use non-mainstream coins as a tool to profit from ordinary investors, while using highly liquid mainstream tokens as a store of value. Wealth may flow from ordinary people into altcoins, which are then harvested by the wealthy or institutions, and then flow back into mainstream coins such as Bitcoin. As the liquidity of Bitcoin continues to increase, its appeal to the wealthy and institutions will also grow.

The price of Bitcoin is not the key; the key is to compete for market share in the Bitcoin financial market.

After the SEC approved the Bitcoin spot ETF, it triggered market competition on multiple levels. Several well-known institutions are competing for ETF leadership in the United States. In the global market, numerous financial centers such as Singapore, Switzerland, and Hong Kong are also following closely. It is not impossible for institutions to sell off Bitcoin. For a small amount of Bitcoin accumulated in the short term, if it is thrown onto the market, whether it can be bought back again without creating a liquidity shortage in the international environment is an unknown.

Moreover, without Bitcoin spot as the backing for the ETF, the issuing institution will not only lose fee income but also lose the power to dictate the pricing of Bitcoin. Correspondingly, the financial market will lose the pricing power over this "digital gold"—the future financial ballast, and will also lose the Bitcoin spot derivatives market. This is a strategic failure for any country and financial market.

Therefore, it is difficult for global traditional financial capital to form a tacit understanding for a joint sell-off, but it may instead create a FOMO effect in the process of continuously competing for shares.

Bitcoin is Wall Street's "inscription"

For assets with low cost and high odds, a small investment can significantly improve the portfolio's return without exposing it to disruptive risks. Bitcoin currently has a relatively small valuation in traditional financial markets and has low correlation with mainstream assets. For mainstream funds, holding a certain proportion of Bitcoin seems to be a logical choice.

Moreover, if Bitcoin becomes the highest returning asset in the mainstream financial market in 2024, how will those fund managers who missed out explain to their investors? On the other hand, if they hold 1% or 2% of Bitcoin, even if the fund managers dislike it or incur losses, the overall performance will not be overly affected by the risks of Bitcoin, making the reporting to investors much easier.

Bitcoin is the ideal choice for Wall Street fund managers.

The previous discussion covered why Wall Street fund managers might consider purchasing Bitcoin, and now let's explore why they would be eager to do so.

The Bitcoin network has semi-anonymous characteristics, and the SEC may find it difficult to regulate fund managers' Bitcoin spot accounts as deeply as they do with securities. Although KYC is required for token deposits and withdrawals and for OTC trading on mainstream trading platforms, we know that offline OTC trades may still occur. Regulators may not have sufficient means to oversee financial practitioners' spot positions.

The previous discussion is enough for fund managers to write detailed reports on investing in Bitcoin. Since Bitcoin itself lacks liquidity, a small amount of capital can influence its price, what other factors would prevent fund managers from using public funds for their own profit when there are sufficient objective reasons?

Project traffic self-withdrawal

Traffic self-extraction is a unique phenomenon in the cryptocurrency market, and Bitcoin benefits from this in the long term.

The traffic of Bitcoin self-withdrawal refers to other projects that, in order to leverage the popularity of Bitcoin, have to enhance the image of Bitcoin, ultimately injecting the traffic they operate back into Bitcoin.

Reviewing the issuance of all altcoins, the legend of Bitcoin will always be mentioned, along with the mystery and greatness of Satoshi Nakamoto. They then claim how they are similar to Bitcoin and aspire to become the next Bitcoin. Projects that do not require operation but are passively promoted and passively build their brand will be imitated.

Currently, project competition is more intense, with dozens of Layer2 projects and tens of millions of inscription projects on Bitcoin trying to borrow traffic from Bitcoin, collectively promoting large-scale adoption of Bitcoin. This is the first time in the Bitcoin ecosystem that so many projects mention Bitcoin, so the self-traffic effect of Bitcoin this year may be stronger than in the past.

summary

Compared to last year, the biggest variable in the market is the approval of the Bitcoin ETF. Through analysis, we found that all factors are driving up the price of Bitcoin. Supply reduction and demand surge.

In summary, Bitcoin may be the most promising investment opportunity in 2024.