The Great Bitcoin Shortage of 2024
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As the title suggests, it's a mad dash to allocate to the apex predator of financial assets. Even with policy interest rates 550 bps higher than they were when bitcoin last reached its all-time highs, it threatens to surpass them and spring toward $100,000 per BTC. First painted as a high-risk phenomenon created solely by ZIRP (zero interest rate policy), bitcoin has destroyed all financial modeling and left traditional market analysts and portfolio managers in disbelief:
People are taking bitcoin seriously as an asset in its own right, rather than just tech stock-adjacent beta that they can bid up and speculate on when risk sentiment in markets is booming. We know this because people are using bitcoin the way it was meant to be used, as a bearer asset held by the owner—taking it off of exchanges rather than speculating on holding it on an exchange solely for price exposure.
Bitcoin on exchanges peaked in March of 2020 at 3.23 million BTC, or 17.6% of the circulating supply at the time, and has since fallen to 2.29 million BTC, or 11.6% of the current circulating supply. While it is still traded like a tech stock and speculated on heavily, at one million BTC lighter and 6% less of the total supply in circulation, it is clear that people are taking bitcoin seriously—a pronounced shift from the lead-up to early 2020 when bitcoin was still moving onto exchanges:
A mass exodus is one way of putting it. The net position change of bitcoin exchange balances is widening out to the downside precipitously, as an increasing proportion of flow activity is dominated by outflows. This has been a hallmark of pre-bull run activity, as you can see with the large red outflows prior to and during the 2020-2021 bull run, and the absolute bottom during January of last year which saw the largest period of net exchange outflows in bitcoin's history—think of it as bitcoin holders digging their heels into the ground and setting the floor for the cycle in doing so. We're seeing the same behavior of rising net outflows right now, increasing bitcoin's short-term supply immobility:
Zooming out further, you can see another view of this secular change in the way that bitcoin is treated by the investing public. Up until 2020, the secular trend was bitcoin flowing onto exchanges which is denoted by the higher frequency of green peaks, and after 2020, the secular trend has been bitcoin flowing off of exchanges which is denoted by the higher frequency of red troughs. A rising shortage of bitcoin to be sold as investors remove their holdings from exchanges where they can be readily liquidated for USD, clashing with an accelerating increase in demand spurred on by our dire fiscal and monetary situation and the new ETFs:
Another catalyst for this paradigm shift was the realization that even a purportedly liberal democratic government like the United States can unilaterally take your freedoms. Bitcoin on exchanges peaked on March 13th, 2020, when the US announced sweeping lockdowns for the COVID-19 virus. It has since dropped from 17.66% of supply to 11.65% and is still falling fast. That day, when the most powerful government in the world showcased its willingness and ability to forcibly keep you locked in your house with the threat of imprisonment, the paradigm shift from tech stock to freedom money began in earnest:
According to Goldman Sachs, bitcoin has had superior absolute and risk-adjusted returns year-to-date than all commodities, currencies, stock indices, and even the 11 GICS stock market sectors in and of themselves. Simply apeing into BTC and sitting there gets you better returns than 96% of portfolio managers. Management fees start to look much less attractive to your average retail investor when stumbling on this. Unless you're in the top 1% of active managers globally, the best bet for most people in the face of accelerating monetary debasement is to buy a slice of absolute scarcity and hold on for dear life:
Satoshi's phrase "it might make sense just to get some in case it catches on" has been readily proven and should now more aptly read "it has caught on, get as much as you can before you're priced out of it." Corporations, hedge funds, pensions, and national treasuries are all catching onto this reality as they observe the wonders that a bitcoin allocation can do to their portfolios, idle capital, and stock price.
MicroStrategy, for instance, has risen 446% in the last year, nearly 4x what the closest US megacap tech name, Meta, was able to appreciate in the same period. As more major financial entities take note of bitcoin's outsized gains thanks to its unique properties designed expressly to shield against the dire monetary and fiscal conditions we are experiencing, the influx of these entities bidding up bitcoin will accelerate, exacerbating the bitcoin shortage:
Final thought: bitcoin's market cap just hit a new all-time high, and now we patiently wait for its price to follow suit...
Have a phenomenal week,
Joe Consorti
Theya is an app for simplified Bitcoin self-custody. With its 2-of-3 multisig custody solution, you can enjoy maximum security for your Bitcoin and the peace of mind that comes with it.
Download Theya on the App Store and declare your sovereignty today.