Bitcoin is back above US$60,000 and reached an Australian-dollar record high of $97,000 yesterday amid overwhelming demand and a surge in trading of spot bitcoin exchange-traded funds (ETFs).
Matthew Dellavedova, a vice president at US crypto exchange Swan Bitcoin, explained that “net inflows into exchange-traded funds yesterday were more than 10,000 bitcoin, while the daily issuance of new bitcoin is just 900".
While yesterday’s demand was a standout, since they recently began trading, the new US ETFs are requiring around 2,800 bitcoins per day to meet demand — significantly outpacing bitcoin daily production of around 900.
Digital X CEO Lisa Wade noted, “It’s a demand, demand, demand story. We thought it might trade around all-time highs, but it doesn’t feel like it’s finding a ceiling, it looks like it’s just moving right through. The narrative itself is just about demand.”
Upcoming supply crunch
Since spot bitcoin ETFs were approved on January 10, the price of the cryptocurrency has surged some 35%. Adding the upward pressure is a forecasted supply crunch in April.
The imbalance is expected to intensify even further with the upcoming "halving" event in April, which will further reduce bitcoin production, exacerbating the supply crunch.
Halving is designed to discourage production of coins as it approaches its total supply, which is capped at 21 million coins.
It involves the bitcoin blockchain undergoing a software upgrade that reduces the number of bitcoin produced every day. It happens automatically when 210,000 “blocks” are created as part of the bitcoin mining process and it occurs approximately every four years.
The last halving event was in 2020, and the next one — the fourth — is expected in April, reducing the per-block output to 3.125 bitcoin.
The halving event is anticipated to lead to a price increase because people expect supply to become constrained.
Bitcoin's substantial rise from lows of around $US20,000 less than a year ago demonstrates its resilient appeal among investors, although it is a highly volatile investment and is particularly risky when leveraged.