Bitcoin Is Scarce. That's Actually a Good Thing | ETF Trends

Supply of fiat currencies is seemingly endless. After all, central banks like the Federal Reserve can print at will. Bitcoin’s limited supply enhances the allure of the digital asset.

That supply is dwindling because institutional investors are piling into the market and many retail investors are holding onto Bitcoin for longer periods of time. Asia, in particular, is seeing the most interest in rising institutional investment. China is currently in the works of introducing its own state-backed cryptocurrency offering with the help of major private industry players.

HODLers “do not sell when bitcoin reaches new all-time highs, as has happened during the last few weeks,” notes VanEck’s Dominic Poiger. “Many bitcoin users are using exchange wallets (so called custodial wallets) to store their bitcoin. These accumulators cannot be identified when they are using omnibus exchange wallets. But once they withdraw bitcoins to their own public keys, they can be categorized and observed. The blockchain data and intelligence provider, Glassnode, categorizes these addresses as ‘accumulation addresses’ – private keys that have received bitcoin in the past but have never sold them.”

Bitcoin Enjoying Some Devoted Support

One of the primary catalysts for Bitcoin’s recent bull market is increasing adoption of the digital asset among institutional investors. This popularity is extending toward some well-heeled college endowments.

Some Ivy League endowments are proving to be big fans of Bitcoin, and they’re buying the crypto currency on a well-known brokerage.

“Joining the long-term holders of bitcoin are several corporate treasuries. One of today’s most discussed bitcoin topics is the July 2020 decision by US business intelligence company Microstrategy, Inc to invest its entire $500m treasury balance. The company, led by CEO Michael Saylor, followed up with a $650m convertible notes offering solely for buying bitcoin,” says Poiger.

Many Bitcoin proponents consider the crypto to be  a possible safe-haven asset and a means to protect against inflation.

In a recent research note, JPMorgan said Bitcoin could hit $146,000 in the long term as it competes with gold as an ‘alternative’ currency. The investment bank’s strategists noted that Bitcoin would have to become substantially less volatile to reach this price, however, as the crypto is known for its extreme swings.

“What all of this suggests is that bitcoin’s supply shortage is greater than observers realize, and matters more than ever,” finishes Poiger. “Just as corporate and investor interest is growing, so supply is being squeezed. Many outcomes are unpredictable and in flux at a time when central banks are inflating the money supply and many asset classes. But one thing is constant: the very limited supply that underpins bitcoin’s value.”

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.