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Analysts say the increased dominance of Bitcoin and Ethereum in the cryptocurrency market represents a significant departure from the previous bull market. New data from hedge fund Pantera
Capital shows that Bitcoin’s current price action is closely tied to the trajectory of the stock-to-flow model, which analysts believe will reach $115,212 by August 1.

Bitcoin’s parabolic surge may have pushed prices a bit above the model’s predictions, and last week’s 28% correction temporarily spooked the market, but large corrections and short-term consolidation are one of the characteristics of a bull market.

This model focuses on the impact of Bitcoin’s reward halving on prices. Source: Pantera Capital

The above model focuses on the impact of Bitcoin’s reward halving on prices. According to the model, each reward halving event affects Bitcoin’s supply about six months after it occurs. When Bitcoin’s reward halving occurred on May 11, 2020, the price was around $8,000. Six months later, Bitcoin was trading at over $15,000, entering a parabolic surge and setting a new high.

By analyzing the changes in supply after each halving, Pantera Capital
found that after the second halving, the supply reduction of Bitcoin was only one-third of the first, and the impact of the second halving on the price increase was exactly one-third of the previous one. In other words, after the third halving last year, Bitcoin’s supply is expected to decrease to 40% of 2016. If the relationship holds, it means that the increase in the price this time will be 40% of the previous one, which means that Bitcoin will reach $115,212 in August 2021.

Bitcoin price trend after halving. Source: Halving Tracker

The above chart shows the price trend of Bitcoin after each reward halving. Similar patterns have also appeared in the past two halving events, only the time frame is different. Bitcoin is clearly performing between the 2012 and 2016 cycles, so prices could reach $300,000 to $400,000 around August 4, about 450 days after the halving.

This rally, like the 2017 rally, is about overall market composition and value. Most of the market value is currently focused on Bitcoin and Ethereum, mainly because institutional investors choose to invest in the most mature cryptocurrencies. Andy
Yee, director of public policy for Greater China at Visa, tweeted:

This rally is very different from the past. According to Pantera Capital, the market has shifted significantly from 2017's focus on highly speculative, non-functional tokens to today's Bitcoin and Ethereum.

Cryptocurrency market concentration. Source: Pantera Capital

Bitcoin and Ethereum account for 86% of the total cryptocurrency market value, while the remaining 5,
000 tokens account for 14%. Although Bitcoin's market value peaked at the end of 2017, its combined market value with Ethereum was 52% at the time, and now it has increased to 86%, which means that Bitcoin and Ethereum have consolidated their market share in the past three years.

Possible reasons for the transfer of funds include institutional funds taking Bitcoin as an entry-level investment target for reasons such as network security and huge mining infrastructure. As for investing in Ethereum, it is optimistic about the booming decentralized financial ecosystem built on the Ethereum network.

The continued development of the decentralized financial ecosystem will also attract the attention of institutions, which will further push up the price of Ethereum, because the smart contracts and decentralized platforms of the above-mentioned decentralized financial ecosystem all rely on Ethereum.

According to DeFi Pulse data, the current value of funds locked in decentralized finance is US$29.98 billion, close to the historical high of US$23.116 billion.

Although Bitcoin and Ethereum currently account for 86% of the cryptocurrency market, past market cycles have shown that funds may flow from these top cryptocurrencies to other tokens and to promising new projects. Analysts such as Raoul Pal believe that after the surge in Bitcoin and Ethereum, it will be the turn of riskier tokens to rise.

Recent media reports have said that Goldman Sachs is reportedly preparing to provide custody services for cryptocurrencies, which may pave the way for the next bull market cycle of Bitcoin. The continued inflow of funds from institutional investors will also be the reason for the increase in Bitcoin prices and the consistency of Bitcoin with the stock fund model's estimated trend.