The recent surge in bitcoin’s popularity can be attributed to a fundamental economic principle: supply and demand. The demand for bitcoin has outpaced its supply, leading to a shortage in the market. This shortage has been fueled by the introduction of several US-listed bitcoin exchange-traded funds (ETFs) approved by the Securities and Exchange Commission in January. These ETFs have attracted significant investor interest, resulting in the purchase of more bitcoins on average each day than the number of new coins being created.
According to analysts from crypto money managers, these ETFs have been buying an average of 3,500-4,300 bitcoins per day since February. In contrast, the bitcoin network has been creating only 900 new coins daily during the same period. This supply-demand imbalance has driven up the price of bitcoin, which is now approaching its all-time high set in 2021.
Another factor contributing to the supply shortage is the upcoming “halving” event scheduled to occur in two months. Bitcoin’s supply schedule is designed to halve every four years, and after the next halving, the daily supply of new coins will be reduced to 450. This anticipated reduction in supply could further push prices higher.
Various factors are at play in the current supply crunch, including the US government’s holdings of 215,000 bitcoins, which are currently not being sold. However, the government may need to distribute some of these coins in the future, potentially impacting the supply. Additionally, MicroStrategy, a major holder of bitcoin, recently announced the acquisition of an additional 3,000 bitcoins, further tightening the supply.
While the ETFs and other factors contribute to the supply shortage, there are also psychological factors at play, such as the fear of missing out. The ease of holding bitcoin through ETFs has made it more accessible to investors, including those who are not technologically savvy. However, it is important to note that bitcoin does not generate a return and is driven primarily by speculative demand.
Experts have set various price targets for bitcoin, with some predicting a mid- to high-range price target of $160,000 to $180,000 for this year and even higher targets for the following year. As the price continues to rise, institutional buyers may need to take profits to rebalance their portfolios, potentially impacting the supply-demand dynamics.
In conclusion, the current bitcoin mania can be attributed to the supply shortage caused by increased demand, driven in part by the introduction of ETFs and upcoming supply reductions. While other factors and psychological influences are also at play, the imbalance between supply and demand remains a key driver of the cryptocurrency’s price surge.
