Bitcoin Supply Shock: Unveiling 5 Theories
[TL; DR]
The Bitcoin supply will decrease after the halving event expected between 19 and 21 April.
BTC ETFs have helped to increase inflows into the bitcoin market.
The crypto market expects bitcoin to trade in a range after the halving event before a possible bull run begins.
Introduction
The surge in demand for spot bitcoin ETFs have captured the interest of many investors amid expectation of the next bull run. This rise in demand and the approaching halving event are likely to cause a strong supply shock which can transform the entire crypto market. These developments including the launch of ordinal in_script_ions are likely to influence bitcoin’s price trajectory within the next 2 to 3 years.
This analysis focuses on the 5 theories that explain the tightening bitcoin supply. We will also look at the possible impact of the BTC supply shock at its price and other market dynamics.
Spot Bitcoin ETF Surge Fuels Anticipation of Significant Supply Shock amidst Upcoming 2024 Halving Event
The price of bitcoin reached $50,000 in January, a few days after the United States approved 11 spot bitcoin ETFs. Now, the bitcoin market expects its price to rise as we move towards the 2024 halving event to take place in April.
The anticipated bitcoin supply cut and the BTC ETF issuers’ continued acquisition of the coin are likely to cause a strong supply shock. Let’s look at 5 theories that explain the impending bitcoin supply shock.
Theory 1: Bitcoin ETF inflows Driving Demand
The first theory comes from Marc van der Chijs, a Dutch entrepreneur and investor. Van der Chijs maintains that there is a correlation between Bitcoin ETF inflows and the BTC price. Through his observation, he concluded that the bitcoin ETF related demand has led to a 2% rise in its price since their launch.
He also concluded that the bitcoin market inefficiency has a great impact on the price of the cryptocurrency. The inefficiency was a result of the bitcoin market anticipation of a price increase as a result of the United States BTC ETF approval that occurred on 10 January.
If the demand for bitcoin products like spot ETFs surpasses the supply of newly minted bitcoin its price may rise. The fact that many bitcoin holders postpone selling their BTC in anticipation of further price increases has created shortage in the market. This imbalance between bitcoin demand and supply is likely to intensify after the bitcoin halving which may drive its price up.
Posting on his X profile, Marc van der Chijs said, “I think we are in uncharted territory here, but I believe an average increase of $1000 per trading day over the next weeks is very likely.”
He continued, “After the 2 events above this could even be substantially higher. This means that unless there is a black swan event we will see a new all-time high (>$69K) before the halving and we could possibly hit $100K in the next 2-3 months already.”
Theory 2: Underestimated Global Wealth Flow
Another theorist, Andrew Kang, co-founder of Mechanism Capital, has given his perspective on bitcoin’s long term demand and price movements. His view is that in the long term aggregate income and global wealth will influence the Bitcoin price.
Kang used the average United States household income to forecast the aggregate demand for bitcoin. He has estimated that around $52 trillion will be invested into cryptocurrencies in the future. With that anticipated funds inflow into the crypto market Kang said that about $52 billion per year, translating to $150 million daily, may Flow into bitcoin since it is the number one cryptocurrency.
Nonetheless, this figure is very conservative as he has forecasted that only 1% of the $52 trillion will flow into bitcoin. As such, that estimation has not accounted for bitcoin enthusiasts and institutional investors who may buy Bitcoin in large amounts. The following graph shows the distribution of income in the United States which Kang might have used in his calculations.
Percentage Distribution of Household Income - Statista
Kang, like other analysts, said that bitcoin ETF inflows may lead to the rise in the demand for BTC. Already, the daily inflows into the United States BTC ETF market have exceeded the initial estimates.
As per a Cryptonews publication, Kang said, “I still believe this ETF launch is not comparable to previous events like CME futures, Coinbase IPO, etc. And we don’t spend any time below $40,000. [We will see] $50,000 to $60,000 in February, and an [all-time high] by March.”
Read also: Bitcoin Price Predictions for 2025
Theory 3: The Long-Term Institutional inflow
Ric Edelman, the founder of the Digital Assets Council of Financial Professionals, is the man behind this theory. He believes that there will be much inflow of funds into the bitcoin market due to institutional and individual advisor investments, especially through ETFs.
The reason is that independent financial advisors, who manage a total of about $8 trillion in assets, are interested to invest in bitcoin products like spot ETFs. This indicates a broader acceptance of digital assets as potential lucrative investment instruments.
Edelman estimated that there may be an inflow of more than $150 billion from independent advisors into the digital asset market. Such an amount will likely drive the value of bitcoin up.
Beincrypto has quoted Edelman as saying, “I’m anticipating that by the time we get to the end of 2025, we’re talking 2 years, we’re going to see total inflows of more than $150 billion. We’re only at $5 billion right now.”
Theory 4: Bitcoin Halving 2024
The bitcoin halving event, programmed in its protocol, reduces the reward for bitcoin miners by half after about every 4 years. The next bitcoin halving, expected between 19 and 21 April, will reduce the miners’ rewards from 6.25 to 3.125, leading its daily issuance to decrease from 900 BTC to 450 BTC.
This will, definitely, push down bitcoin supply. As a result, it will likely push the price of bitcoin up within 6 to 12 months after the halving event. Historically, after every halving bitcoin traded in a range for a couple of months before entering a bull run.
Commenting on this, John Nosta, a crypto analyst, said, “The anticipation of reduced supply can drive demand and speculative investment leading up to a halving.”
He added, “Halving gradually slows down the rate of new coin creation, ensuring scarcity and potentially increasing value over time. Historically, Bitcoin has experienced significant price increases in the months following a halving, although this is influenced by many factors and not solely the halving event.”
Theory 5: Bitcoin investor accumulation
Due to the on-coming bitcoin halving, many investors are accumulating BTC as they anticipate a bitcoin price surge after that event. Indeed, many informed individual and institutional investors are buying and holding BTC.
As an example, Ki Young Ju, CryptoQuant CEO, reported that on 19 February bitcoin whale addresses accumulated a net inflow of 25,300 BTC indicating investors’ buying appetite as we move towards the halving event.
Conclusion
In summary, we have looked at 5 main theories that explain the existing and anticipated bitcoin supply shock. The supply shock and a rise in demand for bitcoin are forcing its price up. Still, many analysts believe that the price of bitcoin will likely increase after the bitcoin halving event.
