The crypto market is crazy, and Bitcoin stands out the most.

The digital encryption market in 2024 is exceptionally hot, with Bitcoin's performance being particularly noteworthy. Over the past month, Bitcoin has risen by more than 50%. What are the reasons behind such astonishing market performance? How much longer can this madness continue? Let's delve into these questions.

The price increase of any asset is inseparable from a reduction in supply and an increase in demand. We can analyze the trend of Bitcoin from the perspectives of supply and demand.

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

Supply Side Analysis

According to consensus, the newly generated Bitcoins are less than 2 million, and the issuance rate will be halved again. The new selling pressure will further decrease after the halving. Observing miner accounts, they have consistently remained above 1.8 million, indicating that miners do not have a significant selling tendency.

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

Demand Side Analysis

The increase in demand comes from multiple aspects:

1. The liquidity brought by ETFs
2. The wealthy hold assets with increasing 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 the traffic.

ETF: A Unique Catalyst for Bitcoin's Current Bull Market

Bitcoin has obtained qualification to enter the traditional financial market through the SEC's ETF approval. Compliant funds can finally flow into Bitcoin, and in the crypto world, traditional financial funds can only flow into Bitcoin.

The deflationary characteristics of Bitcoin make it easy to create investment booms. As long as funds continue to buy in, the price of Bitcoin will keep rising. Funds holding Bitcoin will have top returns, which can attract more capital for further purchases. On the other hand, funds not holding Bitcoin may face performance pressure, even outflows. This model has been operating in Wall Street's real estate market for many years.

The characteristics of Bitcoin are more suitable for this investment game. Over the past month, the average net buy-in per trading day was less than $500 million, yet it brought more than a 50% increase in the market. This is just a small buying volume in traditional financial markets.

ETFs have also increased the value of Bitcoin from a liquidity perspective. In 2023, the global traditional finance scale (including real estate) reached 560 trillion. This indicates that the current liquidity of traditional finance is sufficient to support such a scale of financial assets. Although the liquidity of Bitcoin is not as high as that of traditional financial assets, the access of traditional finance to Bitcoin can undoubtedly create higher valued liquidity for it. It is worth noting that this compliant liquidity can only flow to Bitcoin and not to other digital encryption assets.

Higher liquidity means higher investment value. Only assets that can be realized in a timely manner can carry greater wealth. This leads to the next point:

The Bitcoin preferred by the rich will inevitably become more expensive.

According to market research, billionaires in the coin circle usually hold a large proportion of Bitcoin during a bull market, while the proportion of Bitcoin held by middle-class or below middle-class individuals in the coin circle typically does not exceed 1/4 of their total positions. Currently, Bitcoin's market value accounts for 54.8% of the entire crypto market. If the proportion of Bitcoin held by most ordinary investors is far below this number, then the remaining Bitcoins are likely held by the wealthy and institutions.

Here we introduce the concept of the Matthew effect: the assets held by the rich will continue to rise, while the assets held by ordinary people may continue to fall. If there is no government intervention, the market economy will inevitably exhibit the Matthew effect. The rich will become richer, and the poor may become poorer. This is not only because the rich may be smarter and more capable, but also because they naturally possess more resources. Smart people, useful resources, and information will naturally seek cooperation around the wealthy. As long as wealth is not purely acquired by luck, it can create a multiplier effect, making the rich richer. Therefore, things that conform to the aesthetic and preferences of the wealthy tend to become increasingly expensive, while things that conform to the aesthetic and preferences of ordinary people may become cheaper.

In the crypto market, the rich and institutions may use altcoins as tools, while treating highly liquid mainstream tokens as stores of value. Wealth may flow from ordinary people into small coins, which are then harvested by the rich or institutions, before flowing back 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 the key; the key is whether it can dominate the Bitcoin financial market.

After the SEC approved the Bitcoin spot ETF, it triggered multi-faceted market competition. In the U.S., several well-known institutions are vying for leadership in the ETF space. In the global market, multiple financial centers such as Singapore, Switzerland, and Hong Kong are also following suit. There is a possibility of institutional sell-offs, but in the current international environment, whether it is possible to buy back a small amount of Bitcoin accumulated in the short term after selling is an unknown.

The loss of ETF backing for Bitcoin spot not only means that the issuing institutions lose fee income, but also means that they lose the power to speak on Bitcoin pricing. Correspondingly, the financial market will lose the pricing power for this "digital gold" — the future financial ballast, as well as the Bitcoin spot derivatives market. This is a strategic failure for any country and financial market.

Therefore, global traditional financial capital finds it difficult to form a collusion for market manipulation, and instead, it may create an investment frenzy in the process of continuously grabbing shares.

Bitcoin is Wall Street's "inscription"

For low-cost, high-odds assets, investing a moderate amount can not only significantly improve the return on the asset portfolio but also control the overall risk. Bitcoin is currently still undervalued in the traditional financial market, and its correlation with mainstream assets is low. Therefore, for mainstream funds, holding a certain proportion of Bitcoin is a reasonable choice.

Assuming that in 2024 Bitcoin becomes the highest returning asset in the mainstream financial market, fund managers without allocation will find it difficult to explain to investors. In contrast, if they hold 1% or 2% of Bitcoin, even if they dislike it or incur losses, the overall performance will not be overly affected by the risks of Bitcoin, making it easier to explain to investors.

Bitcoin: The Concealed Investment Tool for Wall Street Fund Managers

The semi-anonymous nature of Bitcoin provides fund managers with a certain degree of operational space. Although mainstream trading platforms require KYC, offline OTC trading still exists. Regulatory authorities find it difficult to comprehensively monitor the spot holdings of financial practitioners.

The analysis above provides sufficient reasons for fund managers to invest in Bitcoin. Since a small amount of capital can influence the price of Bitcoin, fund managers may use public funds for their own profit when there are ample objective reasons.

The Traffic Self-Withdrawal Effect of the Project

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

Other projects, in order to leverage the popularity of Bitcoin, have to promote the image of Bitcoin, ultimately reversing the traffic they operate back into Bitcoin. Many altcoins tell the legend of Bitcoin when they are issued, describing the mystery and greatness of Satoshi Nakamoto, claiming to become the next Bitcoin. This imitation is actually passive marketing and brand building for Bitcoin.

Currently, project competition is more intense, with dozens of Layer2 projects and tens of millions of inscription projects on Bitcoin, all trying to draw traffic from Bitcoin to jointly promote the mass adoption of Bitcoin. This is the first time in the Bitcoin ecosystem that so many projects are endorsing it, so the self-pull effect of Bitcoin's traffic may be stronger this year than in previous years.

Summary

Compared to last year, the biggest variable in the market is the approval of the Bitcoin ETF. Analysis shows that multiple factors are driving the increase in Bitcoin prices. Supply is decreasing while demand is surging.

In summary, Bitcoin is likely to be the most promising investment opportunity in 2024.