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On March 5th (Tuesday), the price of Bitcoin briefly surpassed the historical high of $69,000. While the immediate cause of the surge was the inflow of funds into the U.S.-listed spot Bitcoin ETF, the marginal demand ultimately reflects investors' interest in Bitcoin as an alternative "store of value" and decentralized computing network.
There seems to be a considerable number of active traders holding Bitcoin positions now. The valuation of ETH and most other tokens still remains below the highs of the previous crypto cycle.
If the macroeconomic backdrop remains favorable, we might see further increases in token valuations, but macro factors could also turn unfavorable.
Why did the price of Bitcoin rebound so quickly? According to Grayscale Research, the direct cause of the recent Bitcoin price increase is the demand for spot Bitcoin ETFs listed in the U.S. Since their launch on January 11th, these products have attracted nearly $8 billion in net inflows, far exceeding the rate of new issuance, even before we welcome the Bitcoin halving in April (for more details, see our report "2024 Halving: This Time Is Different"). In our view, the imbalance between the growing demand for ETFs and the limited new Bitcoin supply may have led to the rise in Bitcoin prices.
Although spot Bitcoin ETFs provide a new product structure for cryptocurrency investments in the United States, the marginal demand for Bitcoin ultimately reflects investors' interest in its characteristics as an alternative currency medium and decentralized computing network.
We believe that Bitcoin is a macro asset that can compete with the US dollar and physical gold (two traditional "store of value" assets). The Federal Reserve has signaled a possible rate cut this year, and neither of the two parties in the United States seems to be focusing on controlling the massive budget deficit during peacetime. Lower real interest rates and continuously rising public sector debt could put pressure on the value of the dollar and support competing assets, including Bitcoin. In addition, for some investors, Bitcoin may have advantages over physical gold, for example, it is easy to carry: as long as the holder can access the internet and hold the private keys, Bitcoin can be used anywhere in the world. In our view, the increased demand for Bitcoin mainly comes from investors' concerns about the medium-term outlook for the US dollar and their search for an alternative "store of value" asset. It is worth noting that the price of physical gold also hit a new high on Tuesday in US dollar terms.
Furthermore, over time, technological advancements have expanded the potential use cases of the Bitcoin network. Ordinal Inscriptions began in December 2022 as a way to inscribe non-fungible tokens (NFTs) onto the Bitcoin network and have rapidly grown into one of the largest NFT networks (Figure 2). The emergence of Ordinals not only encourages new users to try Bitcoin but also stimulates innovation among those who see potential use cases in other types, such as trustless Bitcoin-collateralized stablecoin loans and more usage of Bitcoin in decentralized applications. As transaction fees on the main chain are rising, several L2 projects have begun developing on Bitcoin to improve scalability and use cases. There is evidence that more and more people are adopting cryptocurrencies: since the third quarter of 2023, the total value of cryptocurrencies has increased from $160 million to $2.7 billion, a 15-fold increase in just a few months. |
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Post time 20-3-2024 20:54:27