With the listing of the Bitcoin spot ETF and the ability for traditional funds to invest in Bitcoin in compliance, along with the upcoming halving event in April, BTC has factors for continued upward movement on both the supply and demand sides. This article is sourced from AC Capital and compiled and written by PANews.
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As Bitcoin continues to surge, with a growth rate of over 50% in the past month, what mechanisms are driving this crazy market performance? Can this madness continue? Let us delve into it and explore in detail.
The price increase of any asset is closely related to a decrease in supply and an increase in demand. Let us analyze the supply side and demand side separately.
With the continuous halving of BTC, the impact of the supply side on BTC prices is gradually weakening, but we still need to observe potential selling pressure.
On the supply side, according to consensus, the newly generated BTC is less than 2 million. And the issuance rate is about to experience another halving. The additional selling pressure will further decrease after the halving. Looking at the accounts of miners, they have been holding more than 1.8 million BTC for a long time. According to this trend, miners have no intention to sell.
On the other hand, the number of BTC held by long-term holding accounts continues to grow and is currently around 14.9 million. The actual circulating supply of BTC is extremely limited, with a market value of less than 350 billion. This can explain why the continuous daily purchase of 500 million US dollars has caused BTC to skyrocket.
The increase in demand comes from various aspects:
1. Liquidity brought by ETFs
2. Increase in the value of assets held by the wealthy
3. Financial business is more attractive than short-term investment returns
4. Funds: BTC is a must-have asset
The ETF brings scarcity to this round of BTC that cannot be replicated. With the approval of BTC by the SEC through ETFs, BTC has gained access to the traditional financial market. Compliant funds can finally flow into BTC, and traditional financial capital can only flow to BTC in the crypto world.
BTC, which is scarce due to currency tightening, is an asset structure that is easy to create a Ponzi scheme and is susceptible to FOMO. As long as funds continue to buy BTC, BTC prices will continue to rise. Funds that hold BTC will have higher returns, which allows them to expand their capacity to buy more BTC. Funds that do not buy BTC will face performance pressure and may even face capital outflows. Wall Street has been playing this game in the real estate market for decades.
BTC’s attributes are more suitable for playing this Ponzi game. In the past month, the average net daily purchase was less than 500 million US dollars, and this has led to a market increase of over 50%. Such purchases in the traditional financial market are relatively small.
ETFs also increase the value of BTC through liquidity. The global scale of traditional finance, including real estate, is expected to reach 560 trillion by 2023. This proves that the liquidity of the current traditional financial market is sufficient to support such a large-scale financial asset. We know that BTC’s liquidity is far less than that of traditional financial assets. Traditional finance accepting BTC can naturally create liquidity that allows BTC to have a higher valuation. Please note that this compliant liquidity can only flow to BTC and cannot flow to other digital assets. BTC no longer shares a liquidity pool with other crypto assets.
Assets with higher liquidity will have higher investment value. Only assets that can be instantly liquidated can carry greater wealth. This leads us to the next point.
Based on my small-scale market field survey, I found that the millionaires in the cryptocurrency circle often hold a large proportion of BTC during bull markets, while the majority of people in the cryptocurrency circle with the same wealth as me, the middle class or below, hold the majority of BTC positions that do not exceed 1/4. Currently, BTC dominance is 54.8%. Readers can see for themselves, if the proportion of BTC held by people in the same circle is much lower than this ratio, then who will hold BTC?
The answer is obvious: BTC is in the hands of the wealthy and institutions.
Here, we introduce a phenomenon: the Matthew effect- the assets held by the wealthy will continue to rise, while the assets held by the general public will continue to fall. If there is no government intervention, the market economy will inevitably show the Matthew effect. The rich get richer, and the poor get poorer. This is theoretically based. It is not only because the rich may be inherently smarter and more capable, but also because they naturally have many resources. Smart people, useful resources, and information will naturally revolve around these rich people for cooperation. As long as people’s wealth is not obtained by luck, it can form a multiplier effect to become richer and richer. 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 the poor will become cheaper.
In the cryptocurrency market, the rich and institutions use alternative coins as a means to empty the pockets of the general public and use mainstream tokens with high liquidity as storage tools. Wealth is transferred from the general public to altcoins, and then harvested by the rich or institutions before flowing into BTC and other mainstream tokens. When the liquidity of BTC becomes better, it becomes more attractive to the rich and institutions.
The price of BTC is not significant; the key is whether it can capture the market share of the BTC financial market. After the SEC approved the BTC spot ETF, it triggered competition in multiple aspects of the market. Institutions such as BlackRock and Goldman Sachs are vying for the leadership position of ETFs in the United States. In the global market, many financial centers including Singapore, Switzerland, and Hong Kong are following suit. Although institutional selling may occur, whether a small amount of accumulated BTC can be brought back into the market in an international environment without liquidity shortages is unknown.
Furthermore, without BTC spot backed by ETF endorsements, issuing institutions not only lose transaction fees but also lose the right to price BTC. The corresponding financial market will also lose the market for BTC spot derivative products. This is a strategic failure for any country and financial market.
Therefore, I believe that it is difficult for global traditional financial capital to conspire to sell off, but it will create FOMO in the process of continuously raising funds.
BTC is the “scripture” of Wall Street. In the Chinese-speaking world, investors may understand this term. It refers to low-cost, high-odds assets that, with a small investment, can significantly increase the return on investment and prevent the asset portfolio from facing catastrophic risks. BTC’s current valuation is still relatively small in the traditional financial market. Moreover, BTC has little correlation with mainstream assets (although not as negatively correlated as before). So, isn’t it logical for mainstream funds to hold some BTC?
Moreover, suppose BTC becomes the highest-yielding asset in the mainstream financial market in 2024. How can a fund manager who missed out on BTC explain it to their LPs? Conversely, if a fund manager holds 1% or 2% of BTC, even if they don’t like it and even if they suffer losses, it will not significantly affect the fund’s performance due to the excessive risk of BTC. It is also easier to report to investors.
BTC’s flow of funds is natural for Wall Street fund managers. They have a strong incentive to buy BTC with public money when they have sufficient objective reasons. They can use a small amount of capital to lift the price of BTC. As fund managers, what factors would hinder them from doing so?
BTC’s flow of funds is a unique phenomenon in the cryptocurrency market, and BTC has long benefited from it.
BTC’s flow of funds refers to other projects needing to promote BTC’s image in order to attract BTC’s flow, and ultimately, the flow generated by their own projects is injected back into BTC. Think about all the altcoin projects that have been launched. They often talk about BTC’s legend and the mystery and greatness of Satoshi Nakamoto. They also talk about how they want to become the next BTC. BTC does not need to operate, but the projects that imitate it need to operate and brand themselves.
Currently, the competition among projects is more intense, with dozens of Layer2 solutions on BTC and tens of millions of projects imitating BTC, all attempting to borrow BTC’s flow and jointly promote massive adoption of BTC. This year’s flow of funds into BTC will be stronger than ever before.
In conclusion, compared to last year, the biggest variable in the market is the approval of BTC ETFs. Through analysis, we can see that all factors are pumping BTC prices. Supply reduction and demand increase.
Therefore, I believe that BTC is the biggest alpha in 2024.