Why is BTC the largest Alpha in this round?

*Forwarded Original Title:AC Capital: Why is BTC the largest Alpha in this round?

2024 was a crazy year for the digital crypto market. Among various asset categories, BTC’s performance was the craziest. In the past month alone, BTC has surged by over 50%. What lies behind such madness? Can this frenzy continue? Let’s delve into it and explore carefully.

The rise in the price of any asset is driven by a combination of reduced supply and increased demand. Let’s break it down into the supply side and the demand side for separate analysis.

As BTC’s halving continues, the impact of the supply side on BTC’s price has been gradually diminishing. However, we still need to formally observe the potential selling pressure:

On the Supply Side

On the supply side, consensus dictates that fewer than 2 million new BTC can be generated. Additionally, the issuance rate is set to undergo another halving. Any additional selling pressure will be further reduced after the halving. Looking at miners’ accounts, they have consistently held above 1.8 million BTC. Based on this trend, miners show no tendency to sell.

On the other hand, the number of BTC held by long-term holders continues to increase, currently standing at around 14.9 million BTC. The actual high-circulation BTC quantity is limited, with a market capitalization of less than 350 billion USD. This can also explain why continuous daily purchases of $500 million result in the frenzied growth of BTC.

On the Demand Side

The increase in demand on the demand side stems from several factors:

1. 1. Liquidity brought by ETFs.
2. 1. The appreciation of assets held by wealthy individuals.
3. 1. Financial services are more attractive than short-term investment returns.
4. 1. For funds, BTC can be bought wrong but cannot be missed.
5. 1. BTC is at the core of liquidity.

ETFs represent a scarcity of BTC that cannot be replicated in this round.

The approval of BTC by the SEC for ETFs has granted BTC access to traditional financial markets. Compliant funds can finally flow into BTC, and in the crypto world, traditional financial funds can only flow to BTC.

BTC, with its deflationary nature, forms a structure of assets that is prone to forming a Ponzi scheme and susceptible to FOMO. As long as funds continue to buy BTC, the price of BTC will continue to rise. Funds holding BTC will have higher returns, allowing them to increase their holdings of BTC further. Funds that do not hold BTC will face performance pressure, even the risk of capital outflows. This play has been utilized by Wall Street in real estate for decades.

BTC’s properties are more suitable for playing this Ponzi game. In the past month, the average daily net purchases have been less than $500 million, yet this has resulted in a market surge of over 50%. Such purchases in traditional financial markets would only represent a drop in the ocean.

ETFs have also increased the value of BTC in terms of liquidity. The global scale of traditional finance, including real estate, could reach $560 trillion by 2023. This proves that the liquidity of traditional finance is sufficient to support financial assets of such a magnitude. We know that the liquidity of BTC is far inferior to traditional financial assets. With traditional finance entering BTC, it can certainly create liquidity that allows BTC to have a higher valuation. It’s important to note that this compliant liquidity can only flow into BTC and not into other digital crypto assets. BTC no longer shares liquidity pools with other digital crypto assets.

Assets with higher liquidity will inherently have higher investment value. Only assets that can be instantly converted into value have the capacity to hold greater wealth. This leads us to the next point:

BTC, which the rich prefer, will inevitably become more and more expensive

I conducted some small-scale market field surveys. According to my research, billionaires in the crypto world often hold a large proportion of BTC during bull markets, while individuals with similar wealth to mine, middle-class or lower-class individuals in the crypto community, hold BTC positions that rarely exceed 1/4 of their portfolio. Currently, BTC dominance is at 54.8%. Readers, please take note: if the proportion of BTC held by people in your social circle is far below this ratio, then who will hold BTC?

BTC is in the hands of the wealthy and institutions.

Here, I introduce a phenomenon: the Matthew Effect—assets held by the wealthy will continue to rise, while those held by ordinary people will continue to decline. In the absence of government intervention, market economies will inevitably experience the Matthew Effect. The rich get richer, and the poor get poorer. This is theoretically based. Not only because the rich may inherently be smarter and more capable, but also because they naturally possess many resources. Smart people, useful resources, and information naturally revolve around these wealthy individuals seeking cooperation. As long as a person’s wealth is not obtained by luck, it will create a multiplier effect and become increasingly wealthy. Therefore, things that align with the aesthetic and preferences of the rich will undoubtedly be more expensive, while those aligning with the aesthetic and preferences of the poor will become cheaper.

In the crypto world, the situation is that the wealthy and institutions use alternative coins as a means to empty the pockets of ordinary people, while mainstream tokens with high liquidity characteristics are used as a store of value. Wealth flows from ordinary people into altcoins, harvested by the wealthy or institutions, and then flows into mainstream coins such as BTC. As BTC’s liquidity improves, its appeal to the wealthy and institutions becomes even greater.

The price of BTC is insignificant, the key is whether it can capture the BTC financial market share

After the SEC approved BTC’s spot ETF, it triggered competition across various levels of the market. Institutions like BlackRock, Goldman Sachs, and Blackstone are competing for the leadership position in ETFs in the United States. In the global market, financial centers such as Singapore, Switzerland, and Hong Kong are following suit. Institutional selling pressure is not impossible. For the small amount of BTC accumulated in the short term, if sold on the market, whether it can be bought back remains uncertain in an international environment where liquidity is not tight.

Moreover, without BTC spot ETF endorsement, issuing institutions not only lose fees but also lose the pricing power for BTC. Corresponding financial markets also lose BTC, this digital gold - the cornerstone of future finance, and will further lose the market for BTC spot derivatives. This is a strategic failure for any country and financial market. Therefore, I believe that global traditional financial capital is unlikely to form a conspiracy to sell off, but instead will create FOMO through continuous fundraising.

BTC is the “inscription” of Wall Street

For investors in the Chinese-speaking community, they may understand the concept of “inscription” better. It refers to assets with low costs and high odds, where a small amount of investment can significantly increase the portfolio’s return and mitigate the risk of catastrophic loss. Currently, BTC’s valuation in traditional financial markets is still relatively insignificant. Moreover, BTC’s correlation with mainstream assets is not significant (although it’s less negatively correlated than before). So, wouldn’t it make sense for mainstream funds to hold some BTC?

Furthermore, imagine if BTC becomes the highest-performing asset in the mainstream financial market in 2024. How would fund managers explain to their LPs if they missed out on it? On the other hand, if they hold 1% or 2% of BTC, fund managers may not like it, even if it incurs losses, but it wouldn’t significantly affect performance due to the manageable risk of BTC. It would also be easier for fund managers to report to investors.

The correlation between the price of BTC assets and mainstream assets is not significant.

BTC serves as a natural insider trading opportunity for Wall Street fund managers.

Just now, we discussed why Wall Street fund managers reluctantly buy BTC. Now, let’s talk about why they are willing to buy BTC willingly.

We know that BTC operates on a naturally semi-anonymous network. I believe the SEC lacks the means to penetrate and regulate fund managers’ BTC spot accounts like they do with securities. Yes, on platforms like Coinbase and Binance, KYC is required for deposits, withdrawals, and OTC transactions. However, we also know that offline OTC transactions can still occur. Regulatory agencies lack sufficient means to monitor financial professionals’ spot holdings.

With all the previous discussions, fund managers have more than enough reasons to write detailed reports on investing in BTC. Since BTC itself lacks liquidity, a small amount of capital can move its price. So, as a fund manager, with sufficient objective reasons, what factors would hinder them from using public funds to raise their own sedan chair?

Traffic bootstrapping for projects (bootstrap)

Traffic bootstrapping is a phenomenon unique to the cryptocurrency sphere, and Bitcoin has long benefited from this phenomenon.

Bitcoin’s traffic bootstrapping refers to other projects leveraging Bitcoin’s traffic, thereby enhancing Bitcoin’s image, and ultimately channeling the traffic they generate back into Bitcoin.

When recalling the launch of all altcoins, they often reference the legend of Bitcoin and extol the mystery and greatness of Satoshi Nakamoto. They then claim to be the next Bitcoin and aspire to replicate its success. Bitcoin doesn’t need active marketing efforts; rather, projects imitating Bitcoin end up indirectly promoting it and contributing to its brand building.

With current project competition becoming fiercer, numerous Layer 2 solutions and millions of altcoin projects are attempting to piggyback on Bitcoin’s traffic, collectively driving massive adoption of Bitcoin. This marks the first time that so many projects are boosting Bitcoin, resulting in stronger traffic bootstrapping for Bitcoin this year compared to the past.

Summary

Compared to last year, the biggest variable in the market is the approval of Bitcoin ETFs. Through analysis, we have found that all factors are pumping up the price of BTC. Supply reduction and demand surge.

In conclusion, I believe: BTC is the biggest alpha of 2024.

Disclaimer：

1. This article is reprinted from [ACCapitalResearch]. Forward the Original Title‘AC Capital：为什么BTC是这一轮最大Alpha？’.All copyrights belong to the original author [*armonio]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.