Bitcoin is the rudder that steers the ship.
When it comes to cryptocurrency, almost all eyes are on Bitcoin. This was the case since the beginning and still holds true to this day.
That does not mean that, over time, it could not change. We are going to see a massive spreading of this industry, especially when AI agents become commonplace. Simply looking at the forecast numbers regarding tokenization, even if Bitcoin has a $20 trillion market cap, it will be a drop in the bucket.
For the moment, Bitcoin is where attention goes. Markets are driven by psychology, meaning that sentiment is something to watch. In spite of this, there is a case that could be made for Bitcoin based upon some other factors.
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The Supply-Demand Equation
Bitcion is fixed money. There is a cap on how many units will be available. The total number will never be known since the 21 million does not include lost coins. Some estimate that 5-6 million could be missing.
Whatever the amount, we do know the emission rate of Bitcoin. Every four years, this drops by 50% in the halving. This reduces the number of BTC produced with each block. This alters what the miners have available to sell into the market.
This is a formula which was known since the Bitcoin white paper was released. It is a powerful mechanism to potentially drive value. Ironically, it is also what makes it a lousy medium of exchange. That said, we are in the era of "digital gold", something that many seem to be embracing.
It is this outlook that is altering the demand side of the question.
We can start the discussion with this headline:
We are no longer dealing with a retail sector. Investors are showing up in the form of corporations. It is rather limited at this point but the trend is starting to emerge.
Public companies holding Bitcoin increased 65% in 2024, signaling early stages of mass corporate adoption.
New corporate players like Rumble and Workport drive Bitcoin adoption with innovative integration plans.
A lot is made about the interest by governments. Certainly this could provide another massive wave of buy demand. However, my view is that it would pale in comparison to what the private sector could accumulate.
Rumble and Workport are not exactly household names. They each have the potential to have million of dollars worth of BTC in their Treasuries. If we look at the number of companies of this type, it is easy to see how the numbers game starts to take over.
To add to the mix, we can start with the major corporation like Apple, Meta, or Google. These could provide orders that will rival many countries.
Miners Cannot Keep Up
Many dicuss the inflation rate of a currency. This is usually a flawed approach since it is only looking at one side of the equation.
If the supply is x, what does that mean? People like to apply conclusions while operating in a vacuum. The supply-demand equation has two sides. We cannot operation with any rationale only looking at one.
With Bitcoin, we have the emission rate (inflation). This appears to be swallowed up by the demand. This is not surprising when we consider what is happening.
The significant demand for Bitcoin (BTC) by institutional investors via spot BTC exchange traded fund (ETF) is reported to have escalated recently, raising concerns about the ability of miners to adequately reset the market into a state of equilibrium. According to market data, spot BTC ETFs recorded an inflow of $423.6 million (4,349.7 BTC) in the past week, almost doubling the 2,250 BTC mined within the same period.
Why is ETF demand surging?
This could be, in part, due to what we just discussed. The fact that corporations are jumping onto the Bitcoin bandwagon means they might be doing so through the ETF. This is a vehicle that removes the worry about custody, allowing companies to aquire simiilar to any other financial asset.
We have another market that opens up.
The emergence of the Bitcoin ETF allowed a host of financial accounts to enter. This could be pension funds, retirement monies, and other investment portfolios that were banned from holding digital assets directly.
Retirement accounts means trillions of dollars can potentially be accessed across the world. Naturally, not all of this will end up in BTC. One factor that could help is the fact that many in the United States find their savings to be lacking as they head near retirement age.
Having some exposure to Bitcoin could help to close the gap.
For those younger, it could be a strong long term move, especially if the history over the last 10 yearrs of outperforming all asset classes repeats itself.
Like any financial or monetary assets, it all comes down to supply and demand.
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I keep wondering how long it will take for all the institutional investors to buy all the Bitcoin. At that stage they will then be able to control and fix the price.
It is not out of the realm of possibility. The futures market already could be providing that ability since the overall trading volume of Bitcoin is not that great (relatively speaking).
This is a flaw in the design of the amount being fixed. Fortunately, crypto does not suffer the same fate.
Hey TM, have you looked into what will need to happen for BTC to adopt quantum-resistant encryption? I don't know too much about it, but I imagine there will have to be a hard-fork - at which point all the old BTC will either need to be invalidated (which might affect the 21M number) or if it isn't invalidated, it all might get hacked and flood the market. Definitely an interesting problem to solve...
The quantum discussion is very interesting.
To provide an easy answer, the solution to the quantum threat is quantum encryption. But this is the chicken or the egg since the first quantum computer that could break the current encryption could be used to clean everything out before a new quantum encryption is in place.
There is one caveat: everything would be broken. Would bitcoin be the first target. All government and corporate information would be available.
Do you target Bitcoin, Google, national security agencies, or the banking system? Everything would become one's playground with that.
The NIST has already recommended 4 quantum-resistant encryption algorithms and US agencies are currently upgrading their systems... so I think national security agencies should be relatively safe. I imagine the financial sector has more money to play with than government agencies, but I'm not sure how far along they are with upgrading to the NIST-endorsed algorithms... but you're right, quantum-hackers might only need a couple of financial institutions to be vulnerable to be more profitable than Bitcoin. I guess the other issue with Bitcoin is that the price would drop dramatically if they were to flood the market so the profit might not be as vast.
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