Bitcoin's recent rally has brought it within 10% of its previous all-time high with investors now set on a $100,000 price tag.
Since the start of 2024, the cryptocurrency asset class has jumped more than 35%, hitting a total valuation of more than $2.25 trillion. These levels haven't been seen since November 2021, making it safe to say that crypto is back.
At the forefront of crypto's resurgence is Bitcoin (BTC -0.33%). In just 2024 alone, it's added $400 billion to its market and finds itself a measly 10% off of its all-time high of around $68,000.
For years, investors have had their sights set on Bitcoin reaching a $100,000 price tag, and it finally looks like it could happen. As Bitcoin's price is pushed and pulled by supply and demand dynamics, a six-figure Bitcoin isn't a matter of "if" but rather, "when."
Bitcoin's new customers can't stop buying
At the center of Bitcoin's recent jump is the simple fact that demand has outpaced supply. This struggle between opposing forces is nothing new for Bitcoin, but the scale and magnitude at which this is occurring might be.
With the launch of 11 new Bitcoin exchange-traded funds (ETFs), Wall Street juggernauts such as BlackRock and Fidelity have embarked on a historic accumulation to meet investor demand. To back their ETFs, these companies collectively own more than 775,000 coins, representing more than 4% of Bitcoin's total supply.
With this massive buying spree, a supply crunch is forming. Around 900 Bitcoins are created each day. With these ETFs accumulating roughly 10,000 per day, demand is around 10 times greater than the rate of supply. On Feb. 28 alone, more than 11,211 bitcoins were scooped up off the market by ETF sponsors.
A halving unlike any other
It remains to be seen whether these institutions will maintain their rate of accumulation, but what is more certain is that Bitcoin's supply is going to come under even greater pressure in just a few short months. About every four years, Bitcoin's inflation rate is cut in half. Known as the halving, this process is hardwired into Bitcoin's code and serves as the foundation of its robust monetary policy to ensure there will only ever be 21 million bitcoins.
On average, Bitcoin's price rises by 125% in the year a halving occurs. This is likely because buyers are forced to compete for its reduced supply rate. When halvings occur, prices still rise, even if demand remains constant.
If this halving produces an outcome like past ones, Bitcoin could see its price reach somewhere around $99,000 by year-end -- not that far off from the coveted six-figure price. However, when digging a little deeper into the current dynamics of Bitcoin's supply, it becomes apparent that this halving is shaping up to be unlike any other in its 15-year history and could provide the extra fuel needed to reach $100,000.
While around 19.6 million bitcoins are technically in circulation today, only 2.2 million are readily available for purchase on exchanges. This is the lowest level seen since early 2018. More importantly, such low levels mean that the upcoming halving will be the first time in Bitcoin's history that there are fewer coins on the market than at the time of the previous halving.
The perfect recipe for $100,000
Let's add it all up. We have institutions buying at unprecedented rates, there's a halving coming up in less than two months that will push Bitcoin's inflation rate to under 1%, and there's an existing supply that's already under immense pressure.
Nothing is certain, especially in crypto, but it's difficult to see how these developments won't compound and send Bitcoin to not only new all-time highs, but also past the long sought-after $100,000 mark. While it would have been nice to be buying when Bitcoin was trading around $45,000 at the beginning of the year, there's still plenty of evidence that suggests Bitcoin will be a valuable investment, even buying in at today's prices.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
