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Bitcoin’s Latest Existential Question: Oversupply or Undersupply?
Olga Kharif on the current issue facing Bitcoin believers
Bitcoin believers are having a hard time deciding whether the cryptocurrency has a demand or supply problem.
When U.S. exchange-traded funds that invested directly in the original digital currency debuted in January, names like MicroStrategy’s Michael Saylor and Gemini co-founder Cameron Winklevoss warned that pent-up demand would outstrip the supply of newly minted tokens by at least 10 times — implying that those who waited would end up paying a similar increase in price.
Fast forward to now, and everyone is anxious about the exact opposite scenario of a lot of coins suddenly flooding the market and suppressing prices. In recent weeks, the US and German governments have started making moves to sell billions of dollars worth of confiscated tokens. The administrator of bankrupt Japanese cryptocurrency exchange Mt. Gox has started paying a large chunk of $8 billion in Bitcoin and Bitcoin Cash to creditors as well. The concern is that many of the token holders, who have been waiting for repayments for 10 years, will turn around and dump their assets.
Perhaps the conclusion should be that Bitcoin’s supply and demand situation is fragile and easily thrown out of whack, as a single market participant can often have an outsized amount of influence over the price of the currency. The irony is that when Bitcoin debuted in 2009, its original selling point was that it was outside of government control. Now, a decade and a half later, several governments — including the U.S., China, the U.K., Ukraine and Germany — own about $31 billion, or nearly 3% of all Bitcoin in circulation, according to BitcoinTreasuries.net.
At the same time, a similar amount of Bitcoin changes hands almost daily on exchanges around the world. So all the worry about the impending wave of supply could end up having more impact than any actual selling. Bitcoiners have long embraced the ethos of not selling, or hodling as it’s known in the crypto world. About 70% of all digital wallets haven’t moved their Bitcoin in more than a year, even when the currency hit all-time highs in March, according to CCData.
And these government sales will eventually end — at least until the next batch is ready to be sold.
“Like little ghosts from Bitcoin’s past, coming back to haunt us,” said Matthew Hougan, chief investment officer at Bitwise, which runs a spot Bitcoin ETF. “This too shall pass.”