The recent market frenzy surrounding bitcoin (BTC-USD) is driven by a fundamental law of economics: supply and demand. With more bitcoins being purchased daily than new coins being created, there is an imbalance in the market. This is largely due to the launch of several US-listed bitcoin exchange-traded funds (ETFs) in January, which have attracted significant investments in the past month.
According to analysts, these ETFs have been buying an average of 3,500-4,300 bitcoins per day since February, while only 900 new coins are created daily by the bitcoin network. As a result, there is not enough supply to meet the growing demand, leading to a surge in prices. In fact, bitcoin’s price has already surpassed $63,000 and is approaching its all-time high of nearly $69,000 from November 2021.
This demand-supply imbalance could continue in the future due to a scheduled “halving” in two months. Bitcoin’s supply schedule is designed to cut in half every four years, and after the next halving, the daily supply of new coins will decrease from 900 to 450. This could further push prices higher.
Some experts project even higher prices for bitcoin in the coming years. Mark Connors, head of research for crypto asset manager 3iQ, predicts a mid-range price target of $160,000-$180,000 for this year and an eye-popping $350,000-$450,000 for next year. Other money managers, like VanEck, have also set high price targets, with their latest estimate of $80,000 for 2024.
However, there are other factors contributing to the current supply crunch, such as the US government holding 215,000 BTC, which may be sold in the future, and large holders like MicroStrategy buying more bitcoins. As the price continues to rise, institutional investors may need to take profits to balance their portfolios, which could impact the supply-demand dynamics.
While the ETFs have made bitcoin more accessible to investors, it is still a highly speculative asset. As former president and CEO of the Federal Reserve Bank of Boston, Eric Rosengren, points out, bitcoin does not generate any return and is purely driven by speculative demand. Nonetheless, the fear of missing out (FOMO) and the ease of investing in bitcoin through ETFs are driving the current market frenzy.
In summary, the recent surge in bitcoin prices is a result of the supply-demand imbalance, driven by the launch of ETFs and other factors. With a halving scheduled in two months and potential profit-taking from institutional investors, the future of bitcoin’s price remains uncertain. However, the demand for cryptocurrencies continues to grow, and it will be interesting to see how the market evolves in the coming years.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please do your own research before investing in any cryptocurrency.