2024 Bitcoin Market Analysis: Supply and Demand Imbalance Drives Price Surge

The digital cryptocurrency market in 2024 is showing an unprecedented frenzy, with Bitcoin's performance being particularly outstanding. In just the past month, the price of Bitcoin has risen by over 50%. What are the reasons behind this astonishing market performance? How long can this madness last? Let's delve into these questions.

The increase in the price of any asset is inseparable from the two fundamental factors of reduced supply and increased demand. We will analyze from both the supply side and the demand side.

supply-side analysis

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

1. According to the consensus mechanism, fewer than 2 million newly generated Bitcoins will be produced, and another halving is imminent, further reducing the new supply.

2. The miner accounts have been maintained above 1.8 million coins for a long time, indicating that miners do not have a tendency for large-scale selling.

3. The amount of Bitcoin held in long-term accounts continues to grow, currently at approximately 14.9 million coins.

4. The high liquidity of Bitcoin is limited, with a market value of less than 350 billion dollars. This explains why a continuous daily purchase of 500 million dollars can lead to such a significant price increase.

Demand Side Analysis

The increase in demand comes from multiple aspects:

1. New liquidity brought by ETFs
2. The increase in asset value held by the wealthy group
3. Financial services are more attractive than short-term investments.
4. For funds, Bitcoin may be a wrong purchase but cannot be missed.
5. Bitcoin is the core of market attention.

ETF: The Unique Scarcity Driver of Bitcoin

Bitcoin has obtained the qualification to enter the traditional financial market through the SEC's ETF approval. Compliant funds can finally flow into the Bitcoin market, and 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 FOMO effect. Continuous buying by funds will drive up prices, and high-performing Bitcoin funds can attract more capital, thereby expanding their purchasing scale. Funds that do not allocate Bitcoin face performance pressure and may even encounter capital withdrawals.

In the past month, the average net buy on each trading day was less than 500 million dollars, yet it brought over a 50% increase in the market. This is merely an insignificant trading volume in traditional financial markets.

ETFs have also enhanced the value of Bitcoin from a liquidity perspective. The scale of global traditional finance (including real estate) reached approximately $560 trillion in 2023, indicating that the existing liquidity is sufficient to support such a scale of financial assets. Although the liquidity of Bitcoin is far less than that of traditional financial assets, the access of traditional finance will undoubtedly create a higher valuation space for it. It is important to note that this compliant liquidity can currently only flow to Bitcoin and not to other digital crypto assets.

Rich people prefer to drive up Bitcoin prices.

Market research shows that billionaires in the cryptocurrency space often hold a large proportion of Bitcoin during bull markets, while middle-class and below investors typically hold no more than 1/4 of their portfolios in Bitcoin. Currently, Bitcoin's dominance in the cryptocurrency market is 54.8%. This means that most of the Bitcoin is concentrated in the hands of the wealthy and institutions.

This phenomenon reflects the Matthew Effect: the assets held by the rich will continue to appreciate, while the assets held by ordinary people may depreciate. This effect is particularly evident in a market economy without government intervention. The rich are not only likely to be smarter and more capable, but they also naturally possess more resources. Smart people, useful resources, and information will naturally seek cooperation opportunities around these wealthy individuals.

In the cryptocurrency market, the wealthy and institutions may use altcoins as tools to profit from ordinary investors, while using more liquid mainstream tokens as a means of value storage. As Bitcoin's liquidity continues to improve, its attractiveness to the wealthy and institutions will also increase.

The importance of Bitcoin's market share in the financial market ###

After the SEC approved the Bitcoin spot ETF, it triggered multi-faceted market competition. Several top financial institutions in the United States are competing for ETF leadership, while numerous global financial centers are also following this trend.

For financial institutions, holding Bitcoin spot not only relates to fee income, but also to the pricing power over Bitcoin. Losing Bitcoin spot means losing the pricing power over this "digital gold" and the dominance in the related 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 consensus for a coordinated sell-off, and instead, it may create a FOMO effect during the continuous rush to acquire.

Bitcoin: Wall Street's "inscription"

For mainstream funds, allocating a small amount of Bitcoin can significantly enhance the return of the asset portfolio while not bringing excessive risk. Considering that Bitcoin's current valuation in the traditional financial market is still relatively small and its correlation with mainstream assets is low, holding a certain proportion of Bitcoin seems to be a reasonable choice.

If Bitcoin becomes the highest returning asset in the mainstream financial market in 2024, fund managers who do not allocate Bitcoin will find it difficult to explain to investors. Conversely, even holding 1% or 2% of Bitcoin, even if there are losses, will not significantly impact overall performance and will be easier to explain to investors.

Bitcoin: The Potential Gray Area for Fund Managers

The semi-anonymous nature of the Bitcoin network may provide some fund managers with operational space. Although mainstream trading platforms require KYC, offline OTC trading still exists. Regulatory agencies may find it difficult to comprehensively oversee the spot positions of financial practitioners.

Based on the aforementioned analysis, fund managers have ample objective reasons to invest in Bitcoin. In a market environment lacking liquidity, a small amount of funds can have a significant impact on Bitcoin prices. This may create opportunities for some fund managers to use public funds to indirectly inflate the value of their own holdings.

The project's traffic self-withdrawal effect

Bitcoin has long benefited from the unique traffic self-withdrawal phenomenon of the cryptocurrency industry. Other projects, in order to leverage Bitcoin's popularity, have to enhance Bitcoin's image, ultimately feeding back the traffic they operate to Bitcoin.

Looking back at the issuance history of all altcoins, the legendary story of Bitcoin and the mystery and greatness of Satoshi Nakamoto will be mentioned. While these projects imitate Bitcoin, they are also passively building and operating the brand of Bitcoin.

Currently, market competition is becoming more intense, with numerous Layer 2 projects and inscription projects emerging, all attempting to leverage Bitcoin's traffic to jointly promote the widespread adoption of Bitcoin. This has made the self-traffic effect of Bitcoin more apparent this year compared to previous years.

Summary

Compared to last year, the biggest variable in the market is the approval of Bitcoin ETFs. Through analysis, we found that multiple factors are driving the price of Bitcoin upward. Supply continues to decrease, and demand has significantly increased.

In summary, Bitcoin is likely to become the most promising investment target in 2024.