Price is a function of supply and demand. Increase demand and price goes up. Increase supply and price goes down.
Bitcoin has a fixed supply of 21 million coins forever. So we don’t need to worry about supply, it is 100% predictable and limited to 21,000,000 BTC in the year 2140.
With fixed supply, the investment case for Bitcoin is simple: Will there be more demand for Bitcoin in the future?
If yes, the price will go up. 
If not, the price will go down. 
The extent of future demand for BTC controls the exact degree of price movement.
So, what are some key demand drivers for Bitcoin?
Here’s a quick overview of the demand drivers and my estimated annual $ volume:
| Demand Driver | Estimated Annual Dollar Volume |
|---|---|
| Nation States’ Adoption | $50 billion – $100 billion |
| Corporate Adoption | $20 billion – $40 billion |
| Individual Investment Strategy | $10 billion – $30 billion |
| AI and Autonomous Agents | $10 billion – $30 billion (or more) |
| Bitcoin ETFs | $15 billion – $25 billion |
| Remittances and Cross-border Transactions | $5 billion – $10 billion |
| Hedge Against Inflation | $15 billion – $25 billion |
| Financial Inclusion | $2 billion – $10 billion |
| Speculation and Trading | $20 billion – $50 billion |
| Decentralized Finance (DeFi) Platforms | $1 billion – $5 billion |
| Retail and Merchant Adoption | $1 billion |
| Institutional Investment Products | $10 billion – $20 billion |
| Network Effects and Education | $5 billion – $10 billion |
Let’s dive into these points one by one. At the end of this article, I’ll give you my estimation of what this will mean for the BTC price (this will blow your mind 
)!
1. Nation States’ Adoption
How it Drives Demand: As countries face economic uncertainties, some are turning to Bitcoin as a strategic reserve. By holding Bitcoin on their balance sheets, nations can hedge against currency devaluation and global economic downturns.
Guess who’s the biggest holder of Bitcoin among all nation states?
The United States of America! (source)
But there are many other nation states that have a large incentive to accumulate and hold Bitcoin quickly. The game theory may drive more nations into Bitcoin — and quicker than you expect!
The inception of Bitcoin was driven by the need for a decentralized currency, free from the control of central banks, especially in the wake of financial crises that have historically plagued various nations.
Bitcoin, built on a peer-to-peer network, offers a solution to countries with weak currencies or high inflation rates, serving as a hedge against currency devaluation. Its decentralized nature also shields it from government censorship or interference.
Countries like El Salvador and the Central African Republic have recognized Bitcoin’s potential, adopting it as official legal tender. El Salvador’s experience post-adoption showcases the tangible benefits, with significant growth in tourism, remittance savings, and a surge in popularity.
Currently, nation states hold roughly $11 billion in Bitcoin (source):
But how much money could flow into Bitcoin? What is the TAM? Here’s a chart of the consolidated balance sheet assets of the Eurosystem:
If 1% of the $8,000 billion balance sheet of the Eurosystem consolidated balance sheets would flow into Bitcoin each year, the annual dollar demand would be $80 billion for the Eurozone alone.
However, Europe makes only a small portion of the overall nation state reserves as can be seen in this graphic (source):
Bitcoin demand driver: So a conservative estimation of the annual dollar volume that could easily be flowing into Bitcoin only by nation state treasuries would be as follows.
Estimated Annual Dollar Volume: $50 billion – $100 billion.
2. Corporate Adoption
How it Drives Demand: Companies, from tech giants to small startups, diversify their assets by investing in Bitcoin, which can act as a hedge against inflation and showcase a forward-thinking approach.
Currently, public and private companies hold already $17 billion in Bitcoin (source):
Here are a few examples (non-exhaustive list) of public companies holding Bitcoin on their balance sheets (source):
As Bitcoin is already one of the largest currencies by market cap (source) and the only currency with limited supply (=21 million BTC), companies worldwide may decide to allocate a fair portion of their currency holdings to Bitcoin.
13 US companies hoard $1 trillion in cash (Google, Apple, Amazon, Tesla, Microsoft). A sensible strategy for these cash holdings is to invest a portion, e.g., 10%, into the hardest currency, Bitcoin, that cannot be inflated away. Investing 10% or even only 2% into Bitcoin would contain volatility while injecting a better-than-treasury risk/return ratio, as determined in many financial research studies.
For example:
5% of 1 trillion USD is $50 billion dollars and we’re talking only about 13 US companies’ cash positions! So we may easily see a $20 to $40 billion annual USD demand for Bitcoin from corporate investors alone (public and private companies).
Estimated Annual Dollar Volume: $20 billion – $40 billion.
3. Individual Investment Strategy
How it Drives Demand: The average person is becoming more crypto-savvy. By dollar-cost-averaging into Bitcoin, individuals are viewing it as a long-term investment, similar to stocks or real estate.
There are already more Bitcoin Hodlers than Spanish citizens. It’s a medium-sized country that grows quicker than any other nation state!
What do these people do? They accumulate Bitcoin, month after month after month, and never stop. This drives annual demand.
For example, say you have 100 million people buying only $100 of Bitcoin every single month, on average, you’ll get an annual USD demand for Bitcoin by individual hodlers of $10 billion USD.
But the average is always skewed up in financial matters, because a small percentage of people hold a big percentage of assets, the average buy pressure may be much higher for 100 million individual hodlers.
Estimated Annual Dollar Volume: $10 billion – $30 billion.
4. AI and Autonomous Agents
How it Drives Demand: The rise of AI and autonomous agents using Bitcoin for transactions showcases the digital currency’s versatility. These agents require a permissionless system to operate efficiently.
Soon an infinite number of intelligent agents based on LLMs and other AI technologies will start to acquire the scarcest good on Earth, which makes it even more scarce for ordinary people like you and me.
Recommended: The Scarcest Resource on Earth
Bitcoin is money over IP, it is Internet-native money that can be accessed without permission. A machine cannot open a bank account but they can create a Bitcoin account — or hundreds at the same time — and start accumulating monetary energy.
With the rapid adoption of autonomous agents such as BabyAGI and Auto-GPT, there will be billions of profit-oriented AIs soon that do nothing else but accumulate and hold the most Internet-native scarce good, that is, Bitcoin.
This recent Ark invest video talks about Bitcoin’s role for AI agents: 
With 100 million autonomous Bitcoin agents working for 24 hours 365 days per year, we can expect an average income of $365 per year or a dollar a day (conservative!). All of this will flow into Bitcoin!
Estimated Annual Dollar Volume: $10 billion – $30 billion. Or much more.
5. Bitcoin ETFs
How it Drives Demand: ETFs simplify Bitcoin investment for traditional investors. By buying into an ETF, investors indirectly own Bitcoin without managing a wallet.
This is the historical development of assets under management of the ETF industry globally (source):
If we estimate that only 0.5% of the AUM will flow into Bitcoin annually (there’s a lot of internal and external growth so this is extremely conservative), we’d get a $50 billion annual USD demand for Bitcoin.
Let’s cut this by half to stay super conservative:
Estimated Annual Dollar Volume: $15 billion – $25 billion.
6. Remittances and Cross-border Transactions
How it Drives Demand: Bitcoin offers a cheaper and faster solution for international money transfers, especially in countries with expensive or slow banking processes.
We already discussed this in the “nation state adoption” point but we didn’t count it towards the Bitcoin demand there.
Worldbank: “This edition of the Brief also revises upwards 2022’s growth in remittance flows to 8%, reaching $647 billion.” (source)
“Globally, sending remittances costs an average of 6.25 percent of the amount sent.” (source)
As already proven by the country El Salvador, Bitcoin is the easy fix the Worldbank is looking for. The Bitcoin Lightning network can solve the remittance problem in the world, instant and free payments without intermediaries, saving $40 billion annually or more.
We assume that of the $600 billion of annual remittance payments, $5 to $10 will flow into the superior solution Bitcoin. Again, we err’ on the conservative side.
Estimated Annual Dollar Volume: $5 billion – $10 billion.
7. Hedge Against Inflation
How it Drives Demand: In countries with hyperinflation, Bitcoin is a refuge. It offers a stable alternative to rapidly devaluing local currencies.
But inflation is a fact in almost every economy — most people would agree that the major source is monetary debasement, i.e., more dollars are created which results in higher prices of non-dollar assets and goods.
Here’s the chart of recent inflation numbers globally (as these are official, they are a conservative proxy for real inflation):
Thus, if the demand for Bitcoin stays the same, the monetary units (e.g., USD, EUR, CNY) flowing into Bitcoin will increase by ~5% annually. For a $500 billion asset that is Bitcoin, this yields an annual demand increase of $25 billion.
Note that this figure doesn’t include the additional monetary units coming from people who actually want to hedge against inflation by buying Bitcoin. This is just to account for the monetary debasement of the money already flowing into Bitcoin.
The real annual demand is likely to be much higher.
Estimated Annual Dollar Volume: $15 billion – $25 billion.
8. Financial Inclusion
How it Drives Demand: For the billions without access to traditional banking, Bitcoin offers financial services, from saving to borrowing.
As the billions of unbanked people are usually poor, the annual dollar volume from these people won’t be much.
According to the World Bank Group, as of 2017, 31% of the world’s adult population, or approximately 1.7 billion people, were unbanked (source: World Bank Group). McKinsey & Company estimates that as of 2019, 2.5 billion of the world’s adults do not use formal banks or semiformal microfinance institutions to save or borrow money (source: McKinsey & Company).
According to the World Bank Group, the bottom 20% of the world’s population had an average income of $1,298 in 2017 (source: World Bank Group).
Although the numbers are unimpressive, let’s assume that only $1 to $3 per year goes into Bitcoin. I don’t know how I can make it more conservative than that given that Bitcoin may be the only option for those people to participate in the global financial system — and Bitcoin is inclusive and doesn’t reject them like banks do.
Estimated Annual Dollar Volume: $2 billion – $10 billion.
9. Speculation and Trading
How it Drives Demand: Active traders buy and sell Bitcoin daily, hoping to profit from its volatility. This trading volume significantly contributes to its demand.
The monthly trading volume is roughly $400 billion for Bitcoin (~$5,000 billion annually). Let’s assume the Bitcoin trading demand grows by 1% per year and the growth rate gradually declines. Assuming a $50 billion annual new flow into Bitcoin just for trading purposes doesn’t seem unrealistic to me at all, that’s only 1% of the annual trading volume.
Estimated Annual Dollar Volume: $20 billion – $50 billion.
10. Decentralized Finance (DeFi) Platforms
How it Drives Demand: Bitcoin can be integrated into DeFi platforms, allowing for lending and borrowing.
Business Research Company: “The global lending market size grew from $7887.89 billion in 2022 to $8682.26 billion in 2023 at a compound annual growth rate (CAGR) of 10.1%.” (source)
The CAGR of 10% implies a first-year cash flow (demand) into the decentralized finance market of $800 billion per year.
Many platforms for borrowing and lending using Bitcoin exist but I don’t believe it’ll be a big market share from the $800 billion of new capital, probably only a tiny portion like $1 billion to $5 billion will flow into Bitcoin. This is because you need asset collateral first before you can borrow against them. Most people don’t have significant BTC assets though.
This may change over time but let’s stay hyper conservative.
Estimated Annual Dollar Volume: $1 billion – $5 billion.
11. Retail and Merchant Adoption
How it Drives Demand: As more merchants accept Bitcoin, its utility as a currency grows, driving both consumer and business demand.
The lightning network (=Bitcoin’s layer 2 cheap and fast payment solution) grows significantly but is still small (source):
The total addressable market (TAM) of payments is huge but let’s keep it super conservative. This overestimates the cash demand in the short term but significantly underestimates it in the long term:
Estimated Annual Dollar Volume: $1 billion
12. Institutional Investment Products
How it Drives Demand: Beyond ETFs, products like futures and mutual funds centered around Bitcoin attract institutional investors.
Business Research Company: “The market size of global investments market is expected to grow to $5193.94 billion in 2027 at a CAGR of 7.9%.” (source)
There will be some demand for Bitcoin derivatives such as futures or short products and mutual funds concentrating on Bitcoin-related industries such as mining. Let’s assume the new money flowing into these products is less than the CAGR so it remains meaningless in the big scheme of things. Again to stay conservative.
Estimated Annual Dollar Volume: $10 billion – $20 billion.
13. Network Effects and Education
How it Drives Demand: The more people use Bitcoin, the more valuable and accepted it becomes, creating a positive feedback loop.
For instance, the more developers, educators, researchers, and investors contribute to Bitcoin, the stronger the network becomes creating a virtuous loop. A classic example of a network effect that is hard to beat.
You could argue this will be the mother of all demand drivers for BTC but let’s stay conservative and assign a small number to it:
Estimated Annual Dollar Volume: $5 billion – $10 billion.
If you want my detailed view on Bitcoin network effects, check out the following blog tutorial:
Recommended: Want Exploding Prices North of $500,000 per BTC? “Grow N” Says Metcalfe’s Law
Summary and Bitcoin Price Derivation
So let’s recap the annual dollar demand moving into Bitcoin based on the analysis in this article:
| Demand Driver | Estimated Annual Dollar Volume |
|---|---|
| Nation States’ Adoption | $50 billion – $100 billion |
| Corporate Adoption | $20 billion – $40 billion |
| Individual Investment Strategy | $10 billion – $30 billion |
| AI and Autonomous Agents | $10 billion – $30 billion (or more) |
| Bitcoin ETFs | $15 billion – $25 billion |
| Remittances and Cross-border Transactions | $5 billion – $10 billion |
| Hedge Against Inflation | $15 billion – $25 billion |
| Financial Inclusion | $2 billion – $10 billion |
| Speculation and Trading | $20 billion – $50 billion |
| Decentralized Finance (DeFi) Platforms | $1 billion – $5 billion |
| Retail and Merchant Adoption | $1 billion |
| Institutional Investment Products | $10 billion – $20 billion |
| Network Effects and Education | $5 billion – $10 billion |
| Total (Aggregated) | $164 billion – $355 billion |
Based on this analysis, we anticipate an annual USD inflow of $164 billion to $355 billion into Bitcoin. While there will be outflows, the demand drivers are expected to expand over time rather than diminish. For example, as nation states continue to print more currency, their acquisition of Bitcoin will likely intensify. But for the sake of argument, let’s assume that half of the projected inflow is withdrawn from the Bitcoin market each year. This would result in an approximate annual net positive demand of $80 billion to $175 billion for Bitcoin.
Consider a scenario where the net demand for Bitcoin is $100 billion, and its market cap stands at $500 billion (as of this writing). If the market cap remained constant for five years, the cumulative net demand would have absorbed all available Bitcoin by the end of the fifth year. If the USD demand remains consistent or increases, the only logical outcome would be a rise in the market capitalization, translating to an increase in Bitcoin’s price.
With a consistent $100 billion net demand increasing annually, Bitcoin’s market cap would likely approach $10 trillion USD rather than just $1 trillion USD. Otherwise, we’d encounter the same supply issue.
This market cap would continue to grow indefinitely in response to unceasing demand. Thus, Bitcoin’s price trajectory is upward, albeit with expected fluctuations.
At a market cap of $10 trillion, the additional annual demand of $100 billion could be theoretically accommodated, as it would take a century for this demand to absorb all the Bitcoin. However, if an increasing number of individuals, institutions, and nation states adopt a long-term holding strategy (HODL), the market cap would need to rise even further.
A $10 trillion market cap for Bitcoin would correlate with a price of $500,000 per Bitcoin. This aligns with my recent analysis using Metcalfe’s Law and is also comparable to the gold market cap (approximately $12 trillion USD or roughly $600k per BTC). This suggests a convergence of multiple influencing factors.
Recommended: Want Exploding Prices North of $500,000 per BTC? “Grow N” Says Metcalfe’s Law
The post 13 Insane Bitcoin Demand Drivers That Force the Price Up appeared first on Be on the Right Side of Change.
