A supply and demand framework for Bitcoin price forecasting

Abstract

We develop a supply-and-demand equilibrium framework and model to forecast Bitcoin's price trajectory. Grounded in economic first principles, the model integrates Bitcoin's fixed, inelastic supply with demand drivers, including institutional adoption and long-term 'HODL' behavior. Calibrating the model to data from the April 2024 Bitcoin halving, we explore various scenarios that assess how plausible shifts in adoption-driven demand and supply-side liquidity constraints affect price dynamics. Our findings highlight the synergistic role of institutional adoption, accumulation for strategic reserves, and supply shock in driving Bitcoin price increases. We present results from two scenarios, one more conservative and calibrated to April and December 2024 market data, and another bull scenario with more aggressive institutional adoption. Our results suggest thatwith very plausible daily withdrawals of Bitcoin to strategic reservesmarket price could exceed $1-M per Bitcoin by January 2027 to early-autumn 2028 for bull and conservative scenarios, respectively; higher levels are possible sooner if institutional adoption accelerates and Bitcoin's liquid supply is rapidly depleted, potentially implying hyperbolic price acceleration. These dynamics suggest that Bitcoin is a compelling asset for long-term investment. Price forecasts based on supply and demand models may offer investors and fund managers invaluable information needed for customized, forward-looking portfolio allocation and investing decisions.

Keywords: Bitcoin, inelastic supply, economic modeling, institutional adoption, portfolio allocation, price forecast, strategic reserve