The financial markets – including both the stock and cryptocurrency markets – swing in price according to two things: supply and demand.
When supply exceeds demand in a market – or when the number of sellers exceeds the number of buyers – the prices in that market drop. Doesn’t matter if it’s a stock. Or an alt coin. When supply exceeds demand, prices drop.
On the flipside, when demand exceeds supply in a market, prices rise.
Of course, there is an infinite universe of factors that influence supply and demand for a particular asset. But at the end of the day, the one thing you need for a stock price or crypto price to head higher is for demand for that stock or crypto to exceed supply.
This simple reality is why I’m so bullish on cryptos heading into the end of the year.
Because, according to on-chain data, the supply-demand situation in crypto markets today is one characterized by all-time low supply. Couple that all-time low supply with a few demand catalysts over the next few months, and… voila, you have Bitcoin (BTC-USD) up at $100,000 before the year is out.
Check out this chart, which graphs the Bitcoin Long-Term Holder Supply Shock Ratio (purple line) alongside Bitcoin prices (blue line). The Long-term Holder Supply Shock Ratio is a measure of how many Bitcoins have not moved in a long time – it’s basically a representation of the ratio of static supply in the market, and when it’s rising, it means you have a lot of investors who are buying Bitcoin and holding onto their positions.
As you’ll notice, big spikes in the LTH Supply Shock Ratio tend to be a positive leading indicator of Bitcoin price action.
Optically, that makes sense, because if you have more and more investors buying and holding Bitcoin today, that means they are expecting a big positive price move tomorrow.
But fundamentally speaking, it also makes sense according to the simple laws of supply and demand. As the LTH Supply Shock Ratio moves higher, the supply of tradeable Bitcoin in the market goes down – and therefore, once big demand flows into Bitcoin on a particular macroeconomic catalyst, you get a favorable big-demand, low-supply situation which pushes Bitcoin prices way higher.
It’s the supply-demand version of a short squeeze.
Well, right now we’re sitting at multi-year high levels in the Bitcoin LTH Supply Shock Ratio.
History says what comes next is a big move higher in Bitcoin prices over the next few months.
After all, the last time the LTH Supply Shock Ratio was this high was back in January 2020, when the Bitcoin price was $8,500. Within 12 months, Bitcoin prices had soared above $40,000.
All we need now to recreate that magic is a big demand catalyst.
Fortunately, there’s no shortage of those in the market today.
The popular social media app TikTok just launched non-fungible tokens (NFTs). Twitter (NYSE:TWTR) just added Bitcoin tipping. Buy Now, Pay Later (BNPL) leader Affirm is launching a whole suite of new crypto products, including offering customers the ability to invest in cryptos.
Down in Miami, they’ve launched a thing called MiamiCoin, which essentially allows folks to buy a crypto, stake it, and share the profits of that staking with the city in a 70/30 split – instead of paying taxes. Visa (NYSE:V) is reportedly working on an interoperable hub that will allow for cross-chain transactions and transfers, something we see as a huge trend in the crypto markets right now that will help increase ease-of-use and lower barriers to entry.
Switzerland just launched its first crypto fund. Ukraine just passed legislation to legalize cryptos.
Soon enough, one of these catalysts will spark a big demand surge in the crypto markets – and when that happens, big demand will converge on small supply to create a huge Bitcoin rally.
Of course, to play this rally, you could just buy Bitcoin. But, as we all know, when Bitcoin prices soar, many altcoin prices soar much more…
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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.