Crypto analysis: Supply and demand
There are now thousands of cryptoassets globally. These assets have seen a rapid increase in interest in recent years from a broad spectrum of retail and institutional investors. Here, we focus on the leading cryptocurrency, bitcoin, which currently accounts for roughly 40% of the US$2.2 trillion crypto market.
Institutional participants like family offices, corporates, insurance companies, asset managers, and major university endowments are starting to make significant crypto-related investments. Bitcoin, in particular, has seen large institutional participation since 2020. Participants have been buying through CME futures, on the Grayscale Bitcoin Trust, and directly on exchanges.
Importantly, bitcoin was the first scarce digital asset ever created, with a fixed total supply of 21 million coins. Its new supply is cut in half every four years through the “halving” mechanism, until all 21 million coins are mined. Approximately 19 million coins have been mined to date, with around 5 million believed to be lost, 10 million stored in long-term cold storage, and close to 3 million on exchanges. This scarcity is critical to bitcoin’s potential as an asset class.
Before bitcoin, the only known scarce assets (valued only for their scarcity as a store of value) were precious metals. With a growing number of cryptocurrencies, this environment is rapidly changing. In our view, compared to other cryptos, bitcoin benefits from having the highest network effects and the largest market cap, resulting in the highest investor confidence. And just as investors believe in the value of gold because others believe in it, we think bitcoin is likely to benefit from this differentiated confidence. We believe these factors, along with growing institutional participation, currently make bitcoin less likely to be disrupted by other cryptos.