Why Grayscale’s Buying of More Than New Bitcoin Supply Matters
A finding is suggesting that Grayscale’s Bitcoin Trust has bought 18,910 Bitcoin since the 2020 block reward halving earlier this month as against only 12,337 Bitcoin which has supposedly been minted after the network’s regular supply halved.
This is according to a calculated difference in the number of Bitcoin added to the digital currency asset management firm’s Trust since May 11 in comparison with the number of new Bitcoin minted over the same period – though the Trust’s latest 8-K report (May 11 – May 26) indicates 11,412.5 Bitcoin were mined from the halving to the day.
Though, ultimately, the free market will decide what they want eventually, the provided information is somewhat timely to serve in several ways. As Grayscale’s investment is mostly in retail, albeit on a small scale, the news feeds into a response to Goldman Sachs’s recent report that cryptocurrencies like Bitcoin are not an asset class thus not laying out a case for investing in it.
Grayscale's Bitcoin Trust bought 18,910 Bitcoins since the halving.
Only 12,337 Bitcoins have been mined since the halving.
Wall Street wants Bitcoin, and they don't care what Goldman Sachs has to say. pic.twitter.com/Br6a4ijuze
— Kevin Rooke (@kerooke) May 27, 2020
It is worth noting that the investment firm may have been propelled to buy now in anticipation of a likely bull run in sight to cover for any gap in the value and actual backing of the asset that will surface if that be the case. If it had had a lesser amount of Bitcoin in 2016, for example, it could be that Grayscale is trying to avoid a repeat of what happened before the halving effect kicked into Bitcoin’s price action should there be a huge spike in the coming days especially as Bitcoin presents a good entry point for now having proven to be firm even in the face of the challenges presented by the Coronavirus pandemic.
An argument could also be made that there is not enough Bitcoin available in the market already since the supply has been reduced following the halving. Hence, Grayscale – as well as other firms – scooping more Bitcoin than mined is an attempt to reduce the supply further so there won’t be enough to tend to demand. An indication that institutional investors’ demand for Bitcoin is growing is a bullish sign for the space but Grayscale buying more Bitcoin is not representative of more institutional interest.
In an analysis that is based on a simple model used to evaluate current supply/demand for Bitcoin on Grayscale Bitcoin Trust and Square Cash, 100 Acre Ventures notes that Bitcoin’s demand is on the rise. Their net demand is expected to turn net positive between Q2 2020 and Q1 2021 as a result of the reduction in new supply post “halving” and using some simple proxies for consumer demand and long term investment.
They also observed an increase in the demand for Bitcoin across several venues that are more geared towards longer term ownership over short term speculation adding that a tailwind to the “digital gold” narrative is being developed which “brings Bitcoin into the discussion alongside gold as a hedge to future expansion of the monetary base and general macro uncertainty.”
While the impact of the halving has not yet been felt on Bitcoin’s price movement, the accumulation (and centration) of a lot of Bitcoin in the hands of a few has sparked a question of whether it is even healthy for the space.