Bitcoin prices have been scaling new heights recently, and the basic dynamic of tighter supply and increased demand has underpinned that climb, according to a report compiled by London-based crypto custodian Copper.co.
Copper made the case that the recent price ascent is a function of steadily rising demand for bitcoins BTCUSD, +0.52% and the growing scarcity of the asset that has a maximum supply of 21 million, which is projected to be hit by 2140. The researcher also said that the most of the interest in new bitcoins is coming from North America, and the U.S. in particular.
Approximately, 18.625 million bitcoins have been created, or digitally mined in the parlance of cryptocurrency enthusiasts, according to CoinMarketCap.com, but a good chunk of that has been lost, wrote the folks at Copper.
By their estimates, 56% of bitcoins are owned by investors, 18% are lost, 15% are held by so-called traders and the remainder has yet to be mined (see attached chart):
Copper said that because the majority of investors are long-term owners, representing eight out of 10 holders of the cryptocurrency, rising appetite for the world’s most popular digital asset can have an outsize effect on values.
The researchers said that bitcoin’s rise above $40,000 was already in play even before Tesla Inc. TSLA, -5.26% made its surprise filing with regulators on Monday, declaring its investment of $1.5 billion in bitcoin, and its decision to eventually allow customers to purchase its products with bitcoin.
“Data shows that new investors pushed prices much higher in the
last six months of 2020, to acquire north of 2 [million] bitcoins,” wrote Copper’s researchers in the study.
“In order to be able to buy bitcoin in such deep quantities, the price rallied
well above the $20,000 mark that helped persuade early investors
to sell their cryptocurrency above its previous all-time high,” they said.
The crypto market is reliant on a new supply of some 3.2 million bitcoins on exchanges and held by traders, according to the report.
The study also found that investors who have been owners of at least 1,000 bitcoins for about three month increased their holdings in 2020 by 173%.
That rising demand, combined with that constrained supply, helped to lift bitcoin values to a total market value of around $800 billion, and Copper said that the main driver of demand has been North American buyers taking supply from Asian miners.
“The price increase is a result of a demand and liquidity-crunch marriage that
happened early in 2020 when outflows from exchanges—that is,
bitcoins being moved into self-custody—increased significantly,” the company’s research found.
Copper also made an interesting finding, noting that nearly a third of bitcoin trading volume occurs during the period when the New York Stock Exchange is open and investors should be focused on trading in the Dow Jones Industrial Average DJIA, +0.20% and the S&P 500 index SPX, -0.03%.
That so much of trading in bitcoin occurs during stock-market hours, between 9:30 a.m. and 4 p.m. Eastern, may explain why S&P 500 moves are seen at times as correlated with bitcoin prices, Copper wrote.