3.Continued from the previous article💥

A short-term holding of around 3 million BTC is not small, and as prices fluctuate, speculators may still exit with profits.

Without considering these meaningful sources of supply, it is an oversimplification to suggest inevitable scarcity due to slashed mining rewards and steady ETF demand. In our view, a more comprehensive assessment is needed to determine the true supply and demand dynamics behind the upcoming halving event.

Active supply and traffic

Even though Bitcoin has been included in the ETF, the active circulating supply (which we define as Bitcoin that has been transferred in the past 3 months) has grown significantly faster than cumulative ETF inflows. The active BTC supply has increased by 1.3 million since Q4’23, while only around 150,000 new Bitcoins were mined.

Some of this active supply does come from the miners themselves, who may be selling reserves, both to take advantage of price movements and to build liquidity in the event of reduced revenue.

We discussed this in more depth in our previous report, “Bitcoin Halving and Miner Economics,” published on January 30. This is similar to what miners did in previous cycles. However, Glassnode reports that between October 1, 2023, and March 11, 2024, net balances in miner wallets decreased by only 20,471 Bitcoins, meaning that the newly active Bitcoin supply mainly comes from elsewhere.

In previous cycles, changes in the active supply have outpaced the growth of newly mined Bitcoin by more than five times. In the 2017 and 2021 cycles, active supply nearly doubled, from a trough to 6.1 million in 11 months (an increase of 3.2 million), and from 3.1 million to 5.4 million in 7 months, respectively. an increase of 2.3 million). In comparison, the number of Bitcoin mined during the same period was approximately 600,000 and 200,000.

At the same time, Bitcoin’s inactive supply (which we define as Bitcoin that has not moved for more than a year) has also been declining for three consecutive months during this cycle, which may represent long-term holders starting to sell.

Under normal circumstances, this would be interpreted as a mid-cycle sign. In the 2017 and 2021 cycles mentioned above, there was a time frame of approximately 1 year from the peak of inactive supply to the highest price moment of the cycle, which is 12 and 13 months respectively.The number of inactive Bitcoins in the current cycle appears to have peaked in December 2023.

However, it is unclear what proportion of these Bitcoins have been moved to exchanges (sold), locked on cross-chain bridges, or otherwise used in financial transactions (such as over-the-counter transactions). While Bitcoin transfers to exchanges have doubled this year, Bitcoin balances on exchanges have fallen by a net 80,000, according to Glassnode. This suggests that there are other pools of money beyond ETFs that are helping to offset the increase in transfers to exchanges from both long- and short-term holders.

In reality, supply and demand dynamics in spot markets capture only part of the story of capital inflows and outflows. Bitcoin exhibits a derivatives multiplier effect similar to that of commodities, where the nominal value of outstanding Bitcoin derivatives is significantly higher than the market capitalization of physical Bitcoin. Since Bitcoin’s derivatives market amplifies spot trading volume several times, analyzing spot public exchange data alone does not fully reflect the true liquidity and adoption in the Bitcoin economy.

Therefore, while increased activity in “dormant” Bitcoin coincides with previous bull market peaks, we believe the exact dynamics of how supply and demand interact in the current environment remain less certain.

💥Conclusion💥

This cycle may indeed look different. Sustained daily net inflows into U.S. spot Bitcoin ETFs will continue to be a huge tailwind for the asset class. Since the supply of newly mined Bitcoin is about to be halved, this will lead to tighter market dynamics.

However, this does not necessarily mean that we are about to enter a supply crunch situation where demand will outweigh selling pressure. But what is clear is that Bitcoin spot ETFs have officially become a new digital asset class that mainstream financial institutions can now incorporate into traditional investment portfolios, marking a major milestone in Bitcoin’s mainstream adoption.

Therefore, we believe that current price action is just the beginning of a long-term bull market, and further price improvements are needed to push supply and demand dynamics into balance. #热门话题 #BTC