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After a staggering crypto rally, primarily led by Bitcoin, it is fair to say that the approval of spot bitcoin U.S. ETFs in January approval was a game-changer. Since January 10, cryptoâs total market cap has surged from $1.5 trillion to $2.4 trillion, a 60% increase. Nonetheless, crypto remains a nascent and niche asset class â its size is only a fraction of gold (10%) and smaller than Microsoft ($3.1 trillion).
Many naysayers predicted that the ETF approval would be a classic buy-the-rumor-sell-the-fact situation. But, given the massive price rally, this could not have been further from the truth.
The burning question now is: Whatâs next?
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ETFs and Supply/Demand Imbalances
U.S. ETFs alone have attracted inflows of around $19 billion. Including all ETPs, the year-to-date figure is significantly higher. The Blackrock IBIT ETF is the fastest ETF to reach $10 billion in assets. In only two months, the ETF has amassed more bitcoin than Microstrategy since 2020.
These large inflows have created a supply/demand imbalance, thereby increasing the price of the underlying asset. Bitcoin ETFs in the U.S. alone account for ~4% of all Bitcoins in circulation. Add to this the fact that ~29% of all Bitcoin supply has not been touched for over five years, or might be lost forever, these ETFs now represent a significant source of demand.
The current demand-supply dynamics are likely to exacerbate once the Bitcoin halving takes place mid-April. Like a pre-announced corporate action in the traditional world, the event should not have any price impact. However, if the past is any guidance, halving cycles have acted as a psychological catalyst for price increases, kicking off a rally not only in Bitcoin but also in the altcoin market.
