Bitcoin prepares for the perfect storm of supply and demand shocks

Bitcoin could be on the cusp of a very special situation when the supply shock will meet the demand shock.

📉 The supply shock will result from the dwindling level of BTC available on exchanges (only 2.3 million now, or less than 12% of all bitcoin in circulation). The upcoming halving, which will reduce BTC inflation from the current 1.74% to around 0.84%, will make the coin even scarcer and the liquidity crisis – even more acute.

📈 The demand shock will hit when BTC spot ETF will be approved in the US. This will allow major institutional investors to pour massive amounts of money into Bitcoin, which the ETF issuer will have to buy.

But why would big investors be interested in Bitcoin in the first place?

Economic foundations shaking

The current bond market crisis is unprecedented, albeit somewhat forgotten since several banks’ failures in March. The 10-year and the 30-year bonds have crashed 46% and 53% respectively since peaking in 2020. If the classical investor rule says 60% stocks and 40% bonds, you can only imagine the scale of this largely underrated disaster.

🏛️ Last week, FDIC revealed that US banks are sitting on a staggering $684 billion of unrealized losses, which is dangerous for the whole US banking system.

Other big economies are shaking too.

🏗️ The bankruptcies of Chinese real estate giants Evergrande and Sunac have had repercussions across the globe, and the People’s Banks of China injecting over $100 billion into its economy feels like déjà-vu.

💥 You add to the mix the war in Ukraine, the Israeli operation in Gaza, the Venezuelan threat to Guyana… Even most conservative investors start to understand that the world is changing.

Bitcoin as a portfolio diversifier

In these turbulent times, Bitcoin is emerging as a unique diversification tool. After following major asset classes in their fall in 2022, Bitcoin has been actively decorrelating from them in 2023. Its current 60-day correlation with the Nasdaq 100 is only 19%, with the dollar 11%, and with gold – 18%.

The pandemic, the wars, and the high rates have shaken the worldview of many investors, showing that they must be ready for anything. In this paradigm, investing in Bitcoin makes sense even for the skeptics.

The next months promise to be fascinating 🎆