Supply and demand in the cryptocurrency market work similarly to traditional financial markets, but there are a few unique factors at play due to the decentralized nature of cryptocurrencies. Here’s how it all breaks down:
1. Supply:
Supply refers to how much of a cryptocurrency is available in the market. Several things impact the supply of a cryptocurrency:
– Total Supply Limit: Some cryptocurrencies, like Bitcoin, have a fixed total supply (21 million bitcoins). Once all the coins have been mined, no more can be created. This scarcity can drive prices up if demand increases.
– Mining/Staking: For many cryptocurrencies, new coins are brought into circulation through processes like mining (for proof-of-work coins like Bitcoin) or staking (for proof-of-stake coins like Ethereum 2.0). The rate at which new coins are mined or staked adds to the supply over time.
– Burning Mechanisms: Some cryptocurrencies (like Binance Coin or Ethereum) have coin-burning mechanisms, where a portion of coins are permanently removed from circulation. This reduces the total supply, which can potentially increase the price if demand remains constant.
– HODLing (Holding): If a large number of investors hold onto their cryptocurrency (rather than selling it), the available supply on exchanges is reduced. This can increase scarcity and potentially drive up prices.
2. Demand:
Demand refers to how much people want to buy a particular cryptocurrency. Several factors can affect the demand for a cryptocurrency:
– Market Sentiment: News, social media trends, and influential figures (like Elon Musk tweeting about Bitcoin) can cause sudden spikes in demand. Positive news (like institutional adoption or partnerships) can lead to a price surge, while negative news (such as regulations or exchange hacks) can lower demand.
– Adoption: The more people use a cryptocurrency for real-world applications (payments, decentralized finance (DeFi), or smart contracts), the more demand there will be for that coin. For example, as more people and businesses adopt Bitcoin as a store of value or payment method, demand increases.
– Fear of Missing Out (FOMO): When a cryptocurrency’s price starts to rise rapidly, many people buy in due to fear of missing out on potential profits. This increases demand, sometimes driving the price even higher in the short term.
3. How Supply and Demand Affect Price:
– When demand exceeds supply (more people want to buy than there are coins available), the price of the cryptocurrency goes up.
– When supply exceeds demand (there are more coins available than people want to buy), the price of the cryptocurrency drops.
Analysis About Bitcoin
A seasoned trader believes Bitcoin is playing out a “perfect script” that could end with a potential all-time high of $150,000. According to Loukas, Bitcoin will be closing out the second year of its 4-year cycle next month, entering what’s known as the historically explosive third year of the cycle.
Loukas relies on this four-year cycle to predict the highs and lows of the Bitcoin market, and based on past trends, it could help investors spot when this cycle’s peak is coming.
Currently, Loukas sees Bitcoin consolidating within a broad wedge pattern after falling from its record high of $73,835 in March. He expects Bitcoin to soon break into a parabolic rise, supported by changing investor behaviour and possible interest rate cuts. His analysis comes during a time of general market uncertainty, fueled by geopolitical tensions, the upcoming U.S. presidential election, and concerns about the U.S. economy.
U.S. Current Economy
The U.S. added 254,000 jobs last month, which was way higher than expected and the biggest job increase since March.
The numbers for job growth in July and August were also bumped up by an extra 74,000 jobs, which is pretty significant.
Private sector jobs went up by 223,000, much higher than expected, showing that the job recovery isn’t just because of government hiring.
The unemployment rate dropped again from 4.2% to 4.1%, making it the second month in a row with a decrease.
Average hourly wages increased by 4% compared to last year, which is better than expected and up from the previous month’s 3.9%. With inflation estimated to be around 2.2% in September, it means wage growth has been outpacing inflation for the 16th month straight.
Conclusion
Based on the analysis, Bitcoin is entering a crucial phase of its 4-year cycle, with experts predicting a potential surge to a new all-time high of $150,000. This optimistic forecast is grounded in the cyclical nature of Bitcoin’s market, with Loukas highlighting that Bitcoin is poised to enter its historically explosive third year of the cycle. Key factors, such as supply scarcity (with Bitcoin’s capped supply), potential interest rate cuts, and shifting investor sentiment, further support this bullish outlook.
However, it is important to note the broader economic context. The U.S. economy is currently experiencing job growth, a decrease in unemployment, and wage growth that outpaces inflation, which may contribute to the market’s positive momentum. That said, uncertainties surrounding geopolitical tensions and the upcoming U.S. presidential election could still impact market sentiment. Thus, while Bitcoin’s outlook appears promising, it is not without risks influenced by external economic factors.
Editor: Lydicius
