Bitcoin Boom 2024

Bitcoin ETFs have recently been approved, marking a significant shift in the narrative. This not only indicates regulatory acceptance but also reduces the perceived risks of digital asset investments. Despite this, the complex demand and supply dynamics of Bitcoin are often not fully understood by many investors.

Demand Drivers

Distribution and Efficiency Explosion

The approval of Bitcoin ETFs greatly increases the accessibility of Bitcoin as an investment.

• Custody Solutions: Security concerns for investors have been addressed. ETFs offer advanced custodial services, ensuring the safety of assets.
• Tax Simplification: Bitcoin trades through ETFs are reported like other securities, making tax reporting easier.
• Fee Reductions: Management fees are expected to drop significantly, from GBTC's 2% to potentially 0.2% for the most cost-efficient U.S. ETFs.
• Lower Retail Trading Costs: Retail trading fees are predicted to decrease by about 90%, comparing traditional Coinbase fees to the minimal costs of trading Bitcoin ETFs.

Reputational and Regulatory Risk Reduced

The stigma around Bitcoin investment has decreased with the introduction of ETF products. Not including Bitcoin in portfolios might soon be seen as a greater risk, both in terms of performance and keeping up with technology.

Access For All: Institutional and Individual Investors

Plutus21's predictions for Bitcoin ETFs range from Grayscale losing assets to Bitcoin ETFs within a month, to a central bank or government investing in a Bitcoin ETF within three years. For other digital assets, the SEC might wait 6-12 months after Bitcoin ETFs before approving more. Ethereum ETFs and a basket of digital assets ETFs are expected to follow.

Strong Demand Indications

The first two days of Bitcoin ETF trading removed 21 full days of Bitcoin rewards from the market, showing a strong demand for Bitcoin and other digital assets. This demand reflects the growing interest and acceptance of cryptocurrencies as mainstream investment options.

Supply Drivers

All Time Low Short-Term Holders and Exchange Balances

The 'available and active' supply of Bitcoin is at a multi-year low, indicating less likelihood of near-term selling.

Exchange balances are down, and coins held by long-term investors are up, suggesting a move to more illiquid storage. Short-term holder supply and exchange balances are at an all-time low, hinting at a scarcity of available BTC.

Bitcoin Becomes Harder Than Gold

Bitcoin is nearing gold in 'hardness' and is set to surpass it due to its design for 'quantitative hardening.' Unlike the increasing production of gold, Bitcoin's supply is diminishing, with only 7% growth expected over the next 117 years. This, compared to a 35% increase in the US money supply since March 2020, suggests Bitcoin's market cap could grow significantly.

Bitcoin's market cap is small compared to gold, but its increasing 'hardness' could lead to substantial value appreciation.

As the macro tailwinds continue, the potential for growth is significant, considering Bitcoin's past performance and increasing interest from investors.

Long-Term Stored Supply and Accumulation

The 'available supply' of Bitcoin has steadily decreased in recent years, with a notable acceleration following the June 2022 market sell-off triggered by events like the LUNA-UST collapse and the 3AC liquidity crisis. This decline is primarily attributed to investors choosing to self-custody their assets, a precautionary measure taken amid expectations of extended market downturns.

This trend signifies a noticeable shift of Bitcoin holdings from exchanges and trading platforms to safer storage options like cold wallets and institutional custody services. It indicates a rising preference for long-term investment strategies over short-term trading, potentially impacting market liquidity and volatility in the long run.

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