Bitcoin’s Surge: Supply and Demand in Action

As I write this, bitcoin is trading around $38,300. That means investors that bought bitcoin at the previous market peak in late 2017/early 2018 are up 100%. And people that bought bitcoin at the beginning of 2020 are up about 432%.

So why is bitcoin surging so strongly right now? I believe it’s a combination of supply and demand and big investors. 

The institutional investors that moved into bitcoin in a big way have snapped up large supplies of bitcoin — and they aren’t selling. But just as important (in my mind, at least) are big investors. These investors are not as big as institutional investors like Fidelity. But they’re scrambling to gain exposure to bitcoin. They’re placing large orders ($500,000, $1 million, etc). And because institutional investors — and many retail investors — are buying and holding, there’s simply not much supply to be bought. So prices are going up. 

Willy Woo — who is a terrific bitcoin analyst and a must-follow on Twitter — tweeted this thread (complete with charts!) earlier today that nicely sums up the big investor move into bitcoin.

But bitcoin isn’t the only crypto in the First Stage Investor portfolio that’s surging. Ethereum is now trading above $1,200. Ethereum’s all-time high — in case you’re wondering — is $1,432.88. It hit that mark in January 2018.

As I’ve written previously, ethereum (+812%) has outperformed bitcoin (+376%) over the last 365 days. Ethereum has also benefited from the launch of Ethereum 2.0 and its widespread use in the decentralized finance (DeFi) ecosystem.

A lot of people have been asking whether the market has peaked. First, let’s start with the caveat that trying to time the crypto markets is a fool’s errand. It can’t be reliably done. That said, I don’t think the market has hit its top yet.

Investor demand for bitcoin is still incredibly high. Institutional investors, big investors and retail investors are all trying to increase exposure. That’s a potent combination that should continue to fuel growth. And as prices increase, so will interest in ethereum and other coins.

So let’s enjoy the ride and see where it takes us.