What is the likelihood of a scenario where, at the current rate of capital inflows into spot bitcoin ETFs, the market could face a buying crisis of available coins? At what point could this happen? If there is a shortage, what will happen? How will prices change? And are there any ways to prevent such a scenario from materializing?
It’s hard to estimate the likelihood of running short of available BTCs to cover capital inflows into spot bitcoin ETFs, as it depends on a whole range of different factors.
Some of these factors are as follows:
1. The higher the inflows of capital into ETFs, the faster the market will exhaust the available supply. However, it should be noted that not everyone will want to invest in bitcoin at sky-high prices. The crypto market is marked by low liquidity, so flash crashes up to 30% cannot be avoided. Therefore, there will be both inflows and outflows of capital from ETFs. When there is an outflow, ETFs will have to sell off the bitcoins they bought amid profit taking.
2. The willingness of BTC holders to sell their bitcoins at market prices. Believe me, it is very hard to miss out on tens or hundreds of percent. Although the supply is limited, there will always be traders looking to sell BTC for a profit. And the price cannot rise for a long time without pullbacks.
If capital inflows exceed the supply of coins from sellers and miners, a shortage could arise. The time frame depends on how quickly this excess demand occurs. Shortages would cause prices to rise in an attempt to balance out supply and demand. In theory, prices could rise until more holders start selling, thus bringing the market back into a state of equilibrium.
The higher bitcoin’s price, the greater the temptation for manipulation. The market is unregulated, so it would not be hard for large players to sink the market. No one will ask anyone to raise the supply of bitcoin. It will be enough for large players to start dumping coins, taking profits for their customers, and then the gains will stop. Add negative news to this through controlled news agencies, and the market will turn around on its own. But again, this will only happen if the price rises enough to incentivize holders. Therefore, amid a severe shortage scenario, the key lever for balancing supply and demand would still be a sharp rise in bitcoin prices to attract sellers.