Bitcoin (BTC) may be an unstoppable force when it comes to reducing new supply in the market, but the demand for the largest cryptocurrency is being driven up by both retail and institutional adoption. The recent approval of spot Bitcoin exchange-traded funds (ETFs) in the United States, the largest global equity market, has resulted in skyrocketing demand for Bitcoin. This demand could reach new heights with the upcoming Bitcoin halving event.
Speculation in the cryptocurrency world is focused on the potential for new highs or the fear of new lows. The hot narrative in this cycle revolves around the regulations and macro factors that will impact the growth of the blockchain and decentralized finance industry. However, amidst all the possibilities and probabilities, one thing remains constant: Bitcoin.
Bitcoin continues to progress steadily, with its halving event occurring every 210,000 blocks, or approximately every four years. This event reduces the rewards for Bitcoin miners by half, meaning they have to do the same amount of work for half the Bitcoin reward. The predictability of the halving event provides comfort to those in the cryptocurrency community who have experienced previous Bitcoin cycles.
The halving event is based on the oldest law in economics: supply and demand. By reducing the supply of Bitcoin, its price can increase. Satoshi Nakamoto, the creator of Bitcoin, took care of the supply side by implementing a deflationary issuance schedule. However, the demand side was left to the free market.
One macroeconomic factor that has influenced the price of Bitcoin is low interest rates across much of the developed world. This has encouraged speculation on riskier assets like Bitcoin. However, with the U.S. Federal Reserve raising interest rates, Bitcoin has experienced positive and negative shocks. Despite this, Bitcoin’s price remains high, suggesting that other factors, such as its deflationary nature and store of value properties, are outweighing the impact of interest rates.
The recent launch of spot Bitcoin ETFs in the United States has further increased the demand for Bitcoin. Traditional financial institutions are now showing interest in and adopting Bitcoin, leading to the concept of a “Bitcoin Supercycle.” However, not everyone believes that institutional adoption is the primary driver of Bitcoin’s utility and stability. Some argue that it is the adoption of crypto by the masses that will have a more significant impact.
The concept of equilibrium in economics is constantly evolving, and the same applies to Bitcoin’s price action. While the halving cycle provides a predictable reduction in supply, the demand for Bitcoin is the variable in the equation. As long as demand remains steady, Bitcoin’s price is likely to continue climbing.
Bitcoin recently reached a new all-time high before the halving event, leaving analysts unsure of its future price. However, when factoring in inflation, the all-time high is even higher. The institutional adoption of Bitcoin may bring stability to its purchasing power, but without mass usage and utility, price discovery will continue as it has in the past.
This article does not provide investment advice, and readers should conduct their own research before making any decisions.