Bitcoin in the Institutional Bull Market: a Game-changing Phase

The recent BTC price rally appears to be predominantly driven by institutional investors, marking the beginning of a new era in the markets, where supply shock is meeting an escalating demand.

Bitcoin price continues to rise, reaching $61,000 and inciting speculations about when it would break $69,000, thus marking a new all-time high.

However, in many countries, this has already been done. At least 15 countries have registered BTC prices exceeding their previous heights in local currencies: Argentina, Burundi, Congo, Egypt, Ghana, Japan, Laos, Lebanon, Malawi, Nigeria, Pakistan, Sierra Leone, Sudan, Turkey, and today – Australia.

In the meantime, one can notice a relative silence in non-specialist media, both traditional and social. Google search interest for “Bitcoin” is at the average level of 2023 and is sensibly lower than during the bull run of 2021-22.

This leads us to think that the price action is mostly driven by corporates and financial institutions, reacting to the Bitcoin spot ETF approval in the US. Although contrary to purist Bitcoiners’ ideology, this new turn in the leading cryptocurrency’s development spiral brings its own rules and expectations, most of them auspicious for the price. BTC becomes scarcer, while the demand increases.

Bitcoin supply shock

The first thing that changes when big institutions come into play is the scale. With billions – and even trillions – of dollars to spend, they represent a buying power that Bitcoin hasn’t seen before. In this light, the limited liquidity issue, so frequently discussed last year, has evolved into a proper price shock consideration.

First of all, there’s halving. Cutting in half the issuance of new bitcoin will effectively reduce the supply of new coins entering the market from 324,00 to 162,000 yearly. This is equivalent to a $9.7 billion reduction in current prices.

According to Glassnode, out of 19.66 million mined bitcoin, almost 70% haven’t moved in a year, 29% haven’t moved in 5 years, and 14% haven't moved in 10 years. This means that 5.7 million BTC are de facto out of the market (coins lost forever, held in Satoshi Nakamoto’s wallet, or belonging to users who hold it for ideological reasons). 8 million BTC will not be sold until the price reaches substantially higher grounds (three figures at least), and only 5.9 million are truly liquid.

Institutional interest for spot Bitcoin ETFs generated approximately 90,000 BTC inflows in the past 30 days (source: Coinshares). If we assume that the institutional investors keep their appetite at the current levels (i.e. 1.08 million BTC bought per year), this will mean that the liquid BTC supply would be exhausted in 5.5 years. Or 6.2 years if we assume that newly issued BTC will be immediately sent to the market.

 Of course, this is an extremely approximate calculation, which does not take into account a multitude of important factors, notably retail buying, which continues to grow together with the increasing adoption. However, it does give an idea of how scarce bitcoin is. Furthermore, some arguments could be used to suggest a further increase in institutional interest.

More institutional interest in Bitcoin

Investment decisions take time to ripe. Even endorsed by the giants of finance, most people are still wary of cryptocurrencies. It will take time until Fidelity’s and BlackRock’s millions of clients decide to allocate a part of their investments into Bitcoin.

Fidelity has already made the first step for it, now including crypto allocation into its popular all-in-one funds: from 1% in “Conservative” to 3% in “Growth”.

Furthermore, other countries seem to have been encouraged by the US to move closer to approving institutional-grade investment in Bitcoin. Last week, Japan’s government approved a bill that allows venture capitalists and investment funds to hold cryptocurrencies. At the end of January, Hong Kong’s financial regulator accepted the first-ever spot Bitcoin ETF application.

New market behavior

A bull run led by institutions naturally means more buying pressure and a more energetic price rise in the short and middle term. However, it also has consequences in the long term.

Indeed, institutions tend to have a long investment horizon, which decreases the risk of dramatic drops, so familiar to all Bitcoin holders. We will likely be seeing day traders of yesteryear progressively outnumbered by long-term investors, which could reduce sudden downward movements.

All in all, the institutional phase of Bitcoin cycle promises to be game-changing. However, it is not immune from the general macroeconomic downturns. With the looming recession in China and the potential for worldwide conflict, any outcomes are far from predetermined.