The Frenzy of the Crypto Market in 2024: Bitcoin Leads

The cryptocurrency market in 2024 has shown an unprecedented frenzy, with Bitcoin's performance being particularly remarkable. Over the past month, Bitcoin's price has surged by more than 50%, making it the standout performer among various assets. What are the driving factors behind this astonishing market performance? Can this wave of enthusiasm be sustained? Let's delve into these questions.

The rise in the price of any asset is inseparable from the two basic factors of reduced supply and increased demand. We will analyze from the perspectives of supply and demand.

Although the impact of the Bitcoin halving cycle is gradually weakening, we still need to pay attention to potential selling pressure:

Supply Side

According to the consensus mechanism, the newly produced Bitcoin amount is less than 2 million coins, and it is about to face another halving, which will further reduce the selling pressure from new supply. Observing the miner account data, which has long been maintained above 1.8 million coins, indicates that miners currently have no intention of large-scale selling.

On the other hand, the number of Bitcoins held by long-term holders continues to grow, currently around 14.9 million coins. The actual number of highly liquid Bitcoins is quite limited, with a market capitalization of less than 350 billion dollars. This also explains why a continuous daily purchase of only 500 million dollars can significantly drive up the price of Bitcoin.

Demand Aspect

The increase in demand comes from multiple aspects:

1. The new liquidity brought by ETFs
2. The increase in asset value held by affluent groups
3. Financial services are more attractive than short-term investments.
4. For funds, investing in Bitcoin may involve mistakes, but it cannot be missed.
5. Bitcoin is the focus of attention in the market.

ETF: A Unique Catalyst for This Round of Bitcoin Bull Market

Bitcoin ETF has received regulatory approval, opening the door for its entry into the traditional financial market. Compliant funds can finally invest in Bitcoin, and in the crypto market, traditional financial funds can only flow into Bitcoin.

The deflationary nature of Bitcoin makes it easy to form speculative bubbles and panic buying. As long as funds continue to buy, the price of Bitcoin will keep rising, and funds holding Bitcoin will outperform, attracting more capital inflow, creating a virtuous cycle. Meanwhile, funds that do not invest in Bitcoin face performance pressure and may even encounter capital withdrawals. This model has been operating in the Wall Street real estate market for many years.

Bitcoin is more suitable for this speculative game. In the past month, the average net buying per trading day was less than 500 million dollars, yet it brought more than a 50% increase in the market. This is merely a negligible trading volume in traditional financial markets.

ETFs have also enhanced the value of Bitcoin from a liquidity perspective. In 2023, the global traditional financial scale (including real estate) reached $560 trillion, indicating that the current liquidity in traditional finance is sufficient to support such a massive scale of financial assets. The liquidity of Bitcoin is far less than that of traditional financial assets, but access to traditional finance can create the liquidity needed for a higher valuation of Bitcoin. It is worth noting that this compliant liquidity can only flow into Bitcoin and cannot flow into other crypto assets. Bitcoin no longer shares the same liquidity pool with other crypto assets.

Higher liquidity means that assets have greater investment value. Only assets that can be instantly liquidated can carry greater wealth. This leads to the next point:

Bitcoin Favored by the Rich is Destined to Become More Expensive

Through some small-scale market research, it has been found that billionaires in the crypto market often hold a large proportion of Bitcoin during bull markets, while middle-class or below investors usually hold Bitcoin in their portfolios at a rate not exceeding 1/4. Currently, Bitcoin's market capitalization accounts for 54.8% of the entire crypto market. If readers find that the proportion of people at the same level around them holding Bitcoin is far lower than this figure, then Bitcoin is likely concentrated in the hands of the wealthy and institutions.

Here introduces a phenomenon: the Matthew effect - the assets held by the rich will continue to appreciate, while the assets held by ordinary people often depreciate. If there is no government intervention, the market economy will inevitably lead to the Matthew effect, that is, the rich get richer and the poor get poorer. This is not only because the rich may be smarter and more capable, but also because they naturally have more resources. Smart people and useful resources will naturally seek cooperation around these rich individuals. As long as a person's wealth is not purely obtained by luck, a multiplier effect can be formed, leading to increasing wealth. Therefore, things that conform to the aesthetics and preferences of the rich will inevitably become more and more expensive, while things that conform to the aesthetics and preferences of ordinary people will become cheaper and cheaper.

In the crypto market, the wealthy and institutions often use niche coins as tools to cash out from ordinary investors, while using highly liquid mainstream tokens as a means of value storage. Wealth will flow from ordinary people into niche coins, be harvested by the wealthy or institutions, and then flow back into mainstream coins like Bitcoin. As the liquidity of Bitcoin continues to increase, its attractiveness 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.

The approval of the Bitcoin spot ETF by the U.S. Securities and Exchange Commission has triggered market competition on multiple levels. Several large financial institutions are vying for ETF market leadership in the United States. Globally, financial centers such as Singapore, Switzerland, and Hong Kong are also following suit. There is indeed a possibility of institutions selling off Bitcoin. For a small amount of Bitcoin accumulated in the short term, whether it can be repurchased in the context of ample global liquidity after being sold into the market remains an unknown.

Moreover, ETF issuers without support for Bitcoin spot will not only lose fee income but also lose their influence over Bitcoin pricing. Correspondingly, financial markets will lose their pricing power over this "digital gold"—the future financial ballast, and will further lose the Bitcoin spot derivatives market. This represents a strategic failure for any country and financial market.

Therefore, the author believes that it is difficult for global traditional financial capital to form a conspiracy for a coordinated sell-off; instead, it may lead to panic buying as they continually compete for chips.

Bitcoin is the "inscription" of Wall Street

For assets with low cost and high return potential, moderate participation can not only significantly enhance the portfolio's yield but also ensure that the investment portfolio does not face catastrophic risks. Bitcoin is currently still relatively undervalued in traditional financial markets, and its correlation with mainstream assets is not high (although it is not as negatively correlated as before). Therefore, for mainstream funds, holding a certain proportion of Bitcoin seems to be a reasonable choice.

More importantly, if Bitcoin becomes the highest returning asset in the mainstream financial market in 2024, how will fund managers without Bitcoin explain this to their investors? On the contrary, if they hold 1% or 2% of Bitcoin, even if the fund managers are not optimistic or experience losses, the overall performance will not be overly affected by the risks of Bitcoin, making it easier to report to investors.

Bitcoin: The Ideal Private Investment for Wall Street Fund Managers

The semi-anonymous nature of the Bitcoin network provides a certain level of privacy protection for fund managers. Although mainstream trading platforms require KYC (Know Your Customer) procedures, offline OTC trading still exists. Regulators find it difficult to comprehensively monitor the spot holdings of financial practitioners.

Based on the analysis above, fund managers can certainly write detailed reports on investing in Bitcoin. Since a small amount of capital can influence the price of Bitcoin, as fund managers, what could prevent them from using public funds for their own profit when there are sufficient objective reasons?

Self-traffic enhancement of the project

Bitcoin has long benefited from the unique "self-traffic enhancement" phenomenon of the crypto market.

This phenomenon refers to other projects that, in order to leverage the fame of Bitcoin, have to enhance the image of Bitcoin, ultimately feeding back the traffic they operate to Bitcoin.

Reviewing the issuance of all alternative coins, the legendary story of Bitcoin is always mentioned, telling the mystery and greatness of Satoshi Nakamoto. Then they claim they want to become the next Bitcoin. In this way, Bitcoin can achieve passive brand building through projects that imitate it without actively operating.

Currently, the competition among projects is becoming more intense, with dozens of second-layer networks and tens of millions of inscription projects on Bitcoin, all trying to leverage traffic from Bitcoin to jointly promote its large-scale adoption. This is the first time that such a large number of projects are endorsing the Bitcoin ecosystem, so this year, the self-traffic enhancement effect of Bitcoin may be stronger than in previous years.

Conclusion

Compared to last year, the biggest variable in the market is the approval of the Bitcoin ETF. Through analysis, we found that all factors are pushing the Bitcoin price up. Supply is decreasing, and demand is surging.

In summary, the author believes that Bitcoin is likely to be the most promising investment target in 2024.