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.
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 high-range price target for bitcoin this year at between $160,000 and $180,000. Next year, it anticipates an eye-popping target of $350,000 to $450,000 per coin.
Another money manager, VanEck, set an $80,000 2024 price target for bitcoin last quarter.
"Those estimates are admittedly a little stale now,” Matthew Sigel, head of digital asset research for VanEck, said.
'Pure speculative demand'
There are certainly other factors at work in the current supply crunch beyond the demand from ETFs.
One example: The US government currently holds 215,000 BTC, according to blockchain analytics platform Arkham Intelligence, a stash that includes confiscations in various seizures such as from the 2016 hack of crypto exchange Bitfinex.
The fact that they are just being held and not sold currently is constraining the supply. But that could change when the government needs to distribute some amount of that to victims, which may mean selling.
Another big holder and buyer at the moment is MicroStrategy (MSTR), which announced Monday morning that it acquired an additional 3,000 BTC. That brought its total investment to 193,000 BTC, which was valued at over $11.8 billion as of Wednesday.
As the asset price rises, many institutional buyers will need to take profits to maintain the balance of their portfolios, said Sigel with VanEck. That could also change the supply-demand imbalance.
There are also certainly less fundamental, and more psychological, factors driving this new rally, including the fear of missing out.
"It is certainly a representation of the risk appetite," Sam Stovall, chief investment strategist for CFRA Research, told Yahoo Finance Live.
The ETFs have made the ability to hold bitcoin "much easier, particularly for investors that are not tech savvy," said Eric Rosengren, former president and CEO of the Federal Reserve Bank of Boston.
"It doesn't really change the fundamental, underlying fact [bitcoin] doesn't generate a return, so it's pure speculative demand."
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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