Bitcoin: The Star of the Crypto Market in 2024

The cryptocurrency market is exceptionally hot in 2024, with Bitcoin's performance being particularly noteworthy. In just the past month, Bitcoin has achieved a rise of over 50%. What are the reasons behind this astonishing market performance? Can this madness continue? Let's analyze it in depth.

The increase in the price of any asset is inseparable from a reduction in supply and an increase in demand. We can analyze this specifically from the two aspects of supply and demand.

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:

Supply Side Analysis

According to the consensus mechanism, the number of newly generated Bitcoins is less than 2 million coins. Moreover, the upcoming halving event will further reduce the new supply. Observing miner account data, which has long remained above 1.8 million coins, indicates that miners have no tendency for large-scale selling.

On the other hand, the number of Bitcoins held in long-term accounts continues to grow, currently around 14.9 million coins. The truly highly liquid Bitcoin supply is quite limited, with a market value of less than $350 billion. This also explains why a continuous daily purchase of $500 million can lead to a dramatic increase in Bitcoin prices.

Demand Side Analysis

The increase in demand mainly comes from the following aspects:

1. The liquidity enhancement brought by ETFs
2. The wealthy hold assets that appreciate in value
3. Financial services are more attractive than short-term investments.
4. For funds, Bitcoin can be bought incorrectly but must not be missed.
5. Bitcoin is the core of traffic

ETF: Bitcoin's unique scarcity

Bitcoin has gained eligibility to enter the traditional financial market through the SEC's ETF approval. Compliant funds can finally flow into Bitcoin, and traditional financial funds can only flow into Bitcoin within the crypto market.

The deflationary nature of Bitcoin makes it prone to speculative behavior. As long as funds continue to buy, the price of Bitcoin will keep rising, and funds holding Bitcoin will have high returns, allowing them to scale up and buy further. On the other hand, funds that have not bought Bitcoin face performance pressure and may even experience capital outflows. This model has been operating in the real estate market on Wall Street for decades.

The characteristics of Bitcoin are more suitable for this kind of speculative game. In the past month, the average net buy per trading day was less than 500 million, which brought over a 50% increase in the market. Such buying volume is negligible in traditional financial markets.

ETFs have also increased the value of Bitcoin from a liquidity perspective. The global traditional finance scale (including real estate) could reach $560 trillion in 2023. This indicates that the current liquidity in traditional finance is sufficient to support such a scale of financial assets. We know that the liquidity of Bitcoin is far less than that of traditional financial assets. The integration of traditional finance with Bitcoin can naturally create the liquidity needed for a higher valuation of Bitcoin. It is noteworthy that this compliant liquidity can only flow to Bitcoin and not to other crypto assets. Bitcoin no longer shares liquidity pools with other crypto assets.

Having higher liquidity means that assets will have higher investment value. Only assets that can be liquidated in a timely manner can carry greater wealth.

The rich prefer to drive up the Bitcoin price.

According to market research, billionaires in the crypto circle tend to hold a large proportion of Bitcoin during bull markets, while middle-class or below average crypto investors usually hold Bitcoin at a rate of no more than 1/4 of their investment portfolio. Currently, Bitcoin's market capitalization accounts for 54.8% of the entire crypto market. If you find that the proportion of people around you at the same level holding Bitcoin is far below this figure, then Bitcoin is likely concentrated mainly in the hands of the wealthy and institutions.

Here introduces a phenomenon: the Matthew Effect—assets held by the rich will continue to appreciate, while assets held by ordinary people may depreciate. Without government intervention, the market economy will inevitably exhibit the Matthew Effect. The rich get richer, and the poor get poorer. This is theoretically grounded. Not only because the rich may inherently be smarter and more capable, but they also naturally possess more resources. Smart people and useful resources will naturally seek cooperation around these wealthy individuals. As long as a person's wealth is not purely acquired by luck, a multiplier effect can form, leading to increasing wealth. Therefore, things that align with the aesthetic and preferences of the rich will inevitably become more expensive, while things that align with the aesthetic and preferences of ordinary people will become cheaper.

In the crypto market, the wealthy and institutions may use niche coins as tools to profit from ordinary investors, while using highly liquid mainstream tokens as a means of storing value. Wealth may start with ordinary people investing in niche coins, then be harvested by the wealthy or institutions, and eventually flow into mainstream coins like Bitcoin. As the liquidity of Bitcoin continues to increase, its appeal to the wealthy and institutions will also grow.

The price of Bitcoin is not key; what matters is the competition for market share in the financial market.

After the SEC approved the Bitcoin spot ETF, it triggered competition in multiple layers of the market. Several well-known institutions are competing for ETF leadership in the United States. In the global market, financial centers such as Singapore, Switzerland, and Hong Kong are also following suit. Institutional sell-offs are not impossible. For the small amount of Bitcoin accumulated in the short term, if it is sold into the market, whether it can be replenished in an international environment that does not create liquidity shortages is an unknown.

Moreover, without the endorsement of Bitcoin spot for the ETF, the issuing institutions will not only lose fee income but also lose their influence over the pricing of Bitcoin. Correspondingly, the financial market will also lose its pricing power over this "digital gold"—the future financial ballast, and will further lose the Bitcoin spot 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 conspiracy to sell off, and instead, it may lead to a behavior of chasing the rise in the process of continuously grabbing positions.

Bitcoin is the "inscription" of Wall Street

For those low-cost, high-odds assets, a small investment can significantly increase the yield of the asset portfolio without exposing the overall investment portfolio to disruptive risks. Bitcoin's valuation in the traditional financial market is still relatively low. Additionally, the correlation between Bitcoin and mainstream assets is not very high. So isn't it a natural choice for mainstream funds to hold a certain proportion of Bitcoin?

More importantly, if Bitcoin becomes the highest returning asset in mainstream financial markets in 2024, how will those fund managers who have not allocated it explain to their investors? Conversely, if they hold 1% or 2% of Bitcoin, even if the fund managers personally do not like it, and even if they incur losses, the overall performance will not be overly affected by the risks of Bitcoin, making it easier to report to investors.

Bitcoin: A Potential Arbitrage Tool for Wall Street Fund Managers

The semi-anonymous nature of Bitcoin allows for certain operations to be possible. Although mainstream trading platforms require KYC, offline OTC trading still exists. Regulators may lack sufficient means to oversee the spot holdings of financial practitioners.

The analysis above provides sufficient objective reasons for fund managers to invest in Bitcoin. Since Bitcoin itself has limited liquidity and a small amount of capital can influence the price, what factors, under sufficient justification, would prevent fund managers from using public funds for their own profit?

The project's traffic self-withdrawal effect

Traffic self-extraction is a unique phenomenon in the cryptocurrency field, and Bitcoin has long benefited from it.

The traffic of Bitcoin's self-withdrawal refers to other projects that, in order to leverage Bitcoin's influence, have to promote Bitcoin's image, ultimately redirecting the traffic they operate back to Bitcoin.

Looking back at the issuance of all altcoins, the legendary story of Bitcoin is always mentioned, along with the mystery and greatness of Satoshi Nakamoto. They then claim how similar they are to Bitcoin, aspiring to become the next Bitcoin. Bitcoin can build its brand passively through these imitators without any active operation.

Currently, competition among projects is becoming more intense, with dozens of layer two networks and tens of millions of inscription projects on Bitcoin attempting to leverage Bitcoin's traffic to collectively promote large-scale adoption of Bitcoin. This is the first time that the Bitcoin ecosystem has so many projects endorsing it, so the self-pull effect of Bitcoin's traffic may be stronger this year than in previous years.

Conclusion

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 up. Supply is shrinking while demand is rising dramatically.

In conclusion, Bitcoin is likely to become the largest investment opportunity in the crypto market in 2024.