Bitcoin has once again captured global attention, soaring to new all-time highs in recent weeks. While market volatility is nothing new for the world’s leading cryptocurrency, the current rally has sparked renewed debate over what’s driving the momentum. According to many bullish analysts, the answer lies in a fundamental economic principle: supply and demand.
👉 Discover how supply constraints are shaping the future of digital assets.
The Demand Surge Behind Bitcoin’s Rise
Like any asset, Bitcoin’s price is highly sensitive to shifts in demand. And in 2025, one major catalyst has dramatically increased investor appetite: the launch of Bitcoin spot ETFs.
When these exchange-traded funds debuted on January 11, they opened the door for traditional investors—ranging from retail traders to institutional funds—to gain regulated exposure to Bitcoin without directly holding the asset. Since then, nearly $8 billion in net inflows have poured into Bitcoin spot ETFs.
These inflows force ETF issuers to buy actual Bitcoin on the open market to back their shares. This consistent buying pressure has become a powerful engine for price appreciation.
Notably, nine new ETFs launched on day one, while Grayscale's Bitcoin Trust converted into an ETF structure. Despite outflows from the Grayscale fund, the net effect has been a strong positive demand shock for Bitcoin.
According to ByteTree, a leading investment research firm, ETFs and other investment funds now hold 5% of all Bitcoin in existence, up from 4.4% at the start of ETF trading in January. This growing institutional footprint underscores just how much demand dynamics have shifted.
Bitcoin’s Fixed Supply: Scarcity by Design
What sets Bitcoin apart from traditional commodities like gold or oil is its strictly capped supply. The underlying protocol limits the total number of bitcoins that can ever exist to 21 million.
To date, over 90% of all bitcoins have already been mined, leaving fewer than 2 million left to enter circulation. Miners currently produce roughly 900 new bitcoins per day, but even this modest supply is set to be cut in half during the upcoming halving event, expected next month.
This programmed reduction in supply occurs approximately every four years and is hardcoded into Bitcoin’s architecture by its pseudonymous creator, Satoshi Nakamoto. The goal? To make Bitcoin inherently deflationary and resistant to inflation—unlike fiat currencies, which central banks can print at will.
As Galaxy Digital research head Alex Thorn puts it:
“Bitcoin is one of the scarcest assets in the world—and it’s becoming scarcer every day.”
Unlike commodities such as natural gas or gold, where high prices can incentivize increased production over time, Bitcoin’s supply is highly inelastic. No matter how high the price climbs, miners cannot accelerate output beyond the protocol’s rules.
This rigidity makes Bitcoin uniquely vulnerable to price spikes when demand rises—even modestly.
Why Inelastic Supply Fuels Volatility
In economics, inelastic supply means that production doesn’t respond quickly—or at all—to changes in price. For example, oil producers can’t instantly drill new wells when prices spike. But over time, sustained high prices do encourage more exploration and investment.
Bitcoin operates differently. Its supply schedule is fixed and predictable. There are no “new bitcoin mines” to exploit when prices rise. Instead, the system relies on a decentralized network of miners who solve complex algorithms to earn rewards—rewards that decrease over time.
Historically, Bitcoin’s price has tended to rise in anticipation of halving events, as investors front-run expected supply shortages. The current rally may reflect similar market psychology.
Steven Lubka, Private Client Services Director at Swan Bitcoin, explains:
“There will never be additional supply created outside the protocol. Fundamentally, there’s no extra Bitcoin available on the market.”
This structural scarcity makes Bitcoin extremely responsive to even small shifts in demand—especially when those shifts come from large, consistent buyers like ETFs.
Where Is All the Bitcoin Going?
ETFs don’t buy Bitcoin directly from exchanges. Instead, they rely on specialized trading firms—such as Cumberland (a subsidiary of DRW Holdings) and Jane Street Capital—to source large volumes of Bitcoin from the broader market.
But here’s the challenge: a growing portion of Bitcoin is effectively locked away.
Blockchain data reveals that millions of bitcoins sit in so-called “dormant wallets”—addresses that haven’t moved their holdings in years. Some belong to long-term holders (often called “HODLers”) who refuse to sell regardless of price. Others may be lost forever due to forgotten passwords or hardware failures.
Manuel Villegas, analyst at Julius Baer, noted in a recent report that around 80% of Bitcoin’s total supply hasn’t transacted in the past six months. Combine that with dwindling supplies on exchanges and surging ETF demand, and you have a recipe for intensified supply tension.
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Frequently Asked Questions (FAQ)
Q: What causes Bitcoin’s price to go up?
A: Bitcoin’s price rises when demand exceeds available supply. Key drivers include institutional adoption (like ETFs), macroeconomic conditions, and market sentiment—especially around scarcity events like halvings.
Q: Will Bitcoin keep going up?
A: No one can guarantee future price movements. While scarcity supports long-term value propositions, Bitcoin remains highly volatile. Past performance doesn’t indicate future results, and sharp corrections have followed previous rallies.
Q: How does a Bitcoin halving affect price?
A: A halving reduces the rate of new Bitcoin creation by 50%, tightening supply growth. Historically, prices have risen in the months following halvings due to reduced selling pressure from miners and increased speculation.
Q: Why can’t more Bitcoin be created if demand increases?
A: Bitcoin’s supply cap is enforced by consensus rules embedded in its open-source code. Changing it would require near-universal agreement among users and miners—a scenario considered extremely unlikely.
Q: Are ETFs really buying a lot of Bitcoin?
A: Yes. With nearly $8 billion in net inflows since January, ETFs have become one of the largest sources of sustained demand. They now hold 5% of all Bitcoin—up from 4.4% at launch.
Q: Could profit-taking slow down the rally?
A: Absolutely. As Rob Strebel from DRW notes, many early investors are taking profits during rallies, especially those who remember the 2021 peak. This selling pressure can temporarily stall momentum.
Profit-Taking: The Other Side of the Rally
Despite strong demand, not everyone is holding tight. Some investors—particularly those who bought Bitcoin at lower prices—are seizing the opportunity to cash out.
Rob Strebel, Director of Relationship Management at DRW, says Cumberland has had little trouble sourcing Bitcoin for ETFs recently because many large holders are willing sellers at current prices.
“When you see a parabolic move like Bitcoin’s, it’s a natural time to sell. Especially when people remember 2021—they’re taking some chips off the table.”
This profit-taking helps balance the market but also highlights a key risk: if too many holders sell simultaneously during rallies, it could trigger short-term pullbacks—even in a bull market.
Looking Ahead: Scarcity Meets Sentiment
Bitcoin’s year-to-date gain of 58% reflects a powerful confluence of structural scarcity and renewed institutional demand. With supply growth slowing due to the imminent halving and ETFs absorbing billions in net inflows, many analysts believe upward pressure could persist.
However, history warns of caution. After peaking in November 2021, Bitcoin lost over 70% of its value within a year. Skeptics—including regulators and Wall Street veterans—still view it as a speculative asset with no intrinsic value.
Yet for supporters, that very volatility and scarcity are what make Bitcoin unique: a digital store of value shaped by code, not central authorities.
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As long as demand continues to grow—and supply remains constrained—the debate over Bitcoin’s true worth will only intensify.