Analysis of Bitcoin Market Performance in 2024

The cryptocurrency market is exceptionally hot in 2024, with Bitcoin's performance being particularly noteworthy. Over the past month, the price of Bitcoin has soared over 50%. What are the reasons behind this crazy market performance? Let's dive deeper into this.

The rise in the price of any asset is inseparable from a decrease in supply and an increase in demand. Let us analyze the price trend of Bitcoin from the perspectives of supply and demand.

Supply Aspect

As Bitcoin continues to halve, the impact of supply on price gradually weakens, but we still need to observe potential selling pressure:

1. According to consensus, less than 2 million Bitcoin are added each year, and a new halving is approaching, at which point the new supply will be further reduced.

2. The amount of coins held in miner accounts has long been maintained at over 1.8 million, and there are currently no signs of large-scale selling.

3. The number of Bitcoin held in long-term accounts continues to grow, currently around 14.9 million coins.

4. The supply of highly liquid Bitcoin is limited, with a market capitalization of less than 350 billion dollars. This explains why a continuous daily purchase of 500 million dollars can lead to such a large increase.

Demand Aspect

The growth in demand mainly comes from the following aspects:

1. New liquidity brought by ETFs

2. The wealthy hold assets with increasing value

3. Financial operations are more attractive than short-term speculation.

4. Funds do not want to miss out on Bitcoin investment opportunities

5. Bitcoin is the focus of market attention

ETF brings unique advantages to Bitcoin

The approval of the Bitcoin ETF allows it to enter the traditional financial market, enabling compliant funds to flow in on a large scale. Currently, traditional financial funds can only flow into Bitcoin in the crypto world.

The deflationary nature of Bitcoin makes it easy to form a Ponzi structure. As long as the fund continues to buy in, the price will keep rising, and the top-performing funds can further expand their scale. Funds that have not bought in will face performance pressure. This model has been played by Wall Street in the real estate sector for decades.

Bitcoin is more suitable for this kind of game. In the past month, an average net purchase of 500 million dollars per trading day has brought a rise of over 50%. This is just a small trading volume in traditional markets.

ETFs have also enhanced the liquidity value of Bitcoin. The global traditional financial scale reached $560 trillion in 2023, indicating that the existing liquidity is sufficient to support such a scale of assets. Although the liquidity of Bitcoin is not on par with traditional assets, it can create higher valuations after being integrated into traditional finance. It is worth noting that this compliant liquidity can currently only flow to Bitcoin and not to other crypto assets.

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

Rich people tend to drive up the Bitcoin price.

According to market research, billionaires in the cryptocurrency space often hold a large proportion of Bitcoin during bull markets, while the middle class typically holds no more than 25%. Currently, the market capitalization of Bitcoin accounts for 54.8% of the entire crypto market, which means that most Bitcoin is concentrated in the hands of the wealthy and institutions.

This has triggered the Matthew effect: the assets held by the rich continue to appreciate, while the assets held by ordinary people continue to depreciate. Without government intervention, this effect is bound to occur in a market economy. The rich may not only be smarter and more capable but also inherently possess more resources. Intelligent people and useful resources will naturally seek cooperation around the rich, forming a positive cycle of wealth.

Therefore, assets that meet the preferences of the wealthy will inevitably become more and more expensive, while assets that appeal to ordinary people will become cheaper and cheaper. In the cryptocurrency market, the wealthy and institutions often harvest ordinary investors using altcoins, and then transfer their wealth to mainstream coins with better liquidity. As the liquidity of Bitcoin continues to increase, its attractiveness to the wealthy and institutions will also grow.

Competing for Bitcoin's market share in the financial market has become crucial.

After the SEC approved the Bitcoin spot ETF, it triggered competition in multiple layers of the market. Several large institutions in the U.S. are vying for leadership in the ETF space, and various global financial centers are also following suit. While institutional selling of Bitcoin may occur, there is uncertainty as to whether they can buy it back in the current international environment.

The loss of ETF endorsement for Bitcoin spot not only means a loss of transaction fees, but more importantly, it signifies the loss of pricing power over Bitcoin. 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 ongoing process of accumulation.

Bitcoin has become Wall Street's "inscription"

For traditional financial markets, Bitcoin's current valuation is relatively small and has low correlation with mainstream assets. Therefore, it is a reasonable choice for mainstream funds to hold a small amount of Bitcoin. If Bitcoin becomes the highest returning asset in 2024, fund managers who completely missed out will find it difficult to explain to investors. On the contrary, holding 1-2% of Bitcoin will neither overly affect overall performance nor complicate reporting to investors.

Bitcoin may become a covert tool for fund managers

The semi-anonymous nature of the Bitcoin network makes it difficult for regulators to penetrate the Bitcoin spot accounts of fund managers like they do with securities regulation. Although mainstream trading platforms require KYC, offline OTC trading still exists. In cases where there are sufficient objective reasons, fund managers may use public funds for personal gain.

The project comes with traffic effects.

Other projects, in order to leverage the popularity of Bitcoin, have to promote the image of Bitcoin, ultimately bringing more attention to Bitcoin. Almost all altcoins mention the legendary story of Bitcoin when they are issued. Bitcoin can achieve passive brand building through imitated projects without any operation.

Currently, there are dozens of Layer 2 projects and tens of millions of inscription projects in the Bitcoin ecosystem, all trying to leverage Bitcoin's traffic. These projects collectively drive Bitcoin to achieve mass adoption, making this year's Bitcoin traffic self-reinforcing effect stronger than in previous years.

Conclusion

Compared to last year, the biggest variable in the market is the approval of the Bitcoin ETF. Analysis shows that all factors are pushing up the price of Bitcoin. Supply continues to decrease, and demand has significantly increased. In summary, Bitcoin is likely to be the biggest investment opportunity in 2024.