May 15, 2024

News and Political Commentary

1 reason for new bitcoin mania: ‘simply not enough’ supply

2 min read

There is a fundamental law of economics at play in the new market mania surrounding bitcoin (BTC-USD): supply and demand.

More bitcoins are being bought on average each day than new coins are being created.

One big reason for this imbalance is the appetite created by a series of US-listed bitcoin exchange-traded funds that were approved by the Securities and Exchange Commission in January and have attracted sizable amounts of new investor money over the last month.

FILE PHOTO: Representations of cryptocurrency Bitcoin are seen in this illustration, August 10, 2022. REUTERS/Dado Ruvic/Illustration/File PhotoFILE PHOTO: Representations of cryptocurrency Bitcoin are seen in this illustration, August 10, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

The price of bitcoin is approaching its all-time high set in 2021. (Dado Ruvic/REUTERS/Illustration/File Photo) (Reuters / Reuters)

Since the beginning of February, those products have purchased an average of 3,500-4,300 coins each day, according to three analysts who work for crypto money managers.

That is considerably more than the 900 coins being created each day by the bitcoin network over the same period.

“There is simply not enough bitcoin to accommodate all the new demand, and so natural supply/demand dynamics are driving prices higher,” said Grayscale Investments research head Zach Pandl.

Bitcoin zoomed past $63,000 Thursday, putting it within striking distance of its all-time high of nearly $69,000 reached in November 2021. It was changing hands at about $62,220 early Friday.

It closed out February with gains of 44%, its best monthly performance since December of 2020.

A ‘halving’

There could be more supply problems to come due to a “halving” that is scheduled to take place in two months.

When it was created in 2009 by pseudonymous software programmer Satoshi Nakamoto, bitcoin was programmed with a fixed supply schedule that is cut in half every four years.

After that next cut, the so-called halving, the daily supply of new coins will be 450 instead of 900.

That could push prices higher.

“We are in potentially the sweetest spot right here,” Mark Connors, head of research for crypto asset manager 3iQ told Yahoo Finance. “We can’t produce more bitcoin to meet demand.”

Connor’s firm has set its mid- to…



2024-03-01 05:32:45

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