2024-03-01 05:05:45
One reason for Bitcoin’s craze: supply and demand imbalance (Reuters / Reuters)
The new Bitcoin craze is driven by the most basic law of economics—supply and demand.
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On average, more Bitcoins are sold every day than new coins are created every day.
An important reason for this imbalance is that a number of Bitcoin ETFs were approved for listing in the United States in January, thus attracting a large amount of new funds into the market.
According to analysts from three cryptocurrency fund managers, since early February, Bitcoin purchases through related products have averaged 3,500 to 4,300 per day. This is far more than the approximately 900 coins created by the Bitcoin network every day during the period.
Zach Pandl, director of research at Grayscale Investments, said: “There are simply not enough Bitcoins to meet all the new demand, which naturally drives up prices when demand exceeds supply.”
Bitcoin soared as high as over $64,000 on Wednesday, just shy of its all-time high of nearly $69,000 set in November 2021.
In the end, Bitcoin rose by about 42% in February, its best single-month performance since December 2020.
“halved”
There will be bigger supply issues in the future, as Bitcoin production is scheduled to be “halved” in two months.
When anonymous software programmer Satoshi Nakamoto created Bitcoin in 2009, the supply was planned to halve every four years.
After the next halving, the daily supply of new coins will change from 900 to 450.
This could drive up prices.
“We’re probably in the best position,” Mark Connors, director of research at crypto asset manager 3iQ, told Yahoo Finance. “We can’t produce more Bitcoin to meet demand.”
Connor’s company has set a mid- to high-end price target for Bitcoin this year at between $160,000 and $180,000. Next year, it expects to target an eye-popping $350,000 to $450,000 per coin.
Another money manager, VanEck, last quarter set a price target of $80,000 for Bitcoin in 2024.
“That’s probably a bit outdated now,” said Matthew Sigel, head of digital asset research at VanEck.
“Purely speculative demand”
There must be other reasons besides demand for ETFs for the current severe shortage.
VanEck’s Sigel said that as Bitcoin’s price rises, many institutional investors will need to take profits to maintain the balance of their portfolios. This may also change the imbalance between supply and demand.
Of course, there are more psychological reasons than fundamental factors driving this new rebound, including “fear of losing.”
“This definitely represents risk appetite,” Sam Stovall, chief investment strategist at CFRA Research, said on Yahoo Finance Live.
Eric Rosengren, former president of the Federal Reserve Bank of Boston, said that ETFs make holding Bitcoin “easier, especially for investors who are not tech-savvy.”
“It doesn’t really change the basic fact that (Bitcoin) doesn’t generate returns, so it’s purely speculative demand.”
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