Like the value of any commodity—whether or not it’s gold, oil or soybeans—bitcoin’s value is delicate to fluctuations in demand. And demand for bitcoin surged after the January launch of U.S. exchange-traded funds, often known as “spot” bitcoin ETFs, that instantly maintain models of the digital forex. Since then, traders have poured billions of {dollars} into these ETFs. These inflows prompted the funds to purchase bitcoin to satisfy the demand, bidding up the value.

However what makes bitcoin completely different from nearly every other commodity is its tightly constrained provide, a dynamic that may result in sharp value spikes.

The pc code underpinning bitcoin imposes a tough restrict of 21 million cash. Greater than 90% of them have already been created. To increase provide, number-crunching computer systems run algorithms to “mine” new cash. However they’ll solely crank out about 900 new bitcoins a day, a price anticipated to drop subsequent month after a periodic occasion referred to as the halving. The bitcoin provide is ultimately set to cease rising when the ultimate coin is mined, across the 12 months 2140.

“Bitcoin is without doubt one of the scarcest property on the earth and it’s turning into scarcer every single day,” stated Alex Thorn, head of analysis at Galaxy Digital.

There isn’t any assure that bitcoin will preserve rallying. Its present excessive costs might encourage holders to promote their cash and lock in income. Bitcoin’s earlier bull markets have been adopted by devastating crashes: After its final peak in November 2021, bitcoin dropped greater than 70% over the following 12 months.

And skeptics—together with authorities officers and Wall Road executives who’ve stayed on the sidelines of the rally—nonetheless dismiss bitcoin as a speculative asset with no intrinsic worth.

Bitcoin was buying and selling at $67,139.33 at 4 p.m. ET Wednesday, down from the file excessive of $69,208.79 that it touched the day before today, however nonetheless up 58% because the begin of the 12 months.

In economics jargon, the provision of bitcoin is extremely inelastic, which means it doesn’t reply to cost strikes. Commodities which have this property are liable to bursts of value volatility. Producers of pure gasoline, as an example, can’t pump considerably extra gasoline within the quick time period to reap the benefits of excessive costs.

In the long run, although, sustained excessive costs for pure gasoline encourage drillers to find new sources of the gas. Equally, when gold costs are elevated for prolonged durations, gold miners can pursue expensive new mining tasks, attempting to find the dear metallic in ever extra unique locations.

Bitcoin doesn’t work that manner. Guidelines baked into bitcoin’s code specify the speed at which miners can deliver new cash into the market, a price that’s periodically reduce in half. Prior to now, bitcoin’s value has climbed forward of such halvings, as crypto traders anticipate tighter provides. And the concept that bitcoin ought to have a set most provide comes from Satoshi Nakamoto, bitcoin’s nameless creator, who wrote that such a design would preserve bitcoin inflation-free.

“There’s basically no potential to deliver further provide to the market,” stated Steven Lubka, head of personal consumer providers at funding agency Swan Bitcoin.

This makes bitcoin delicate to will increase in demand—and the brand new ETFs have been gobbling up bitcoins since their launch on Jan. 11. On that day, 9 new spot bitcoin ETFs made their debut for buying and selling, whereas an present fund, the Grayscale Bitcoin Belief, transformed into an ETF. Near $8 billion have flowed into the ETFs since then, on a web foundation, with inflows into the 9 new funds outpacing outflows from Grayscale.

As of Tuesday, 5% of the world’s whole provide of bitcoin was held by ETFs or different funding funds globally, up from 4.4% on Jan. 11, when the brand new U.S. ETFs began buying and selling, based on estimates from funding analysis agency ByteTree.

When the ETFs purchase new bitcoins to satisfy investor demand, they typically depend on proprietary buying and selling corporations reminiscent of Cumberland, a unit of Chicago-based buying and selling big DRW Holdings, or New York-based Jane Road Capital. These corporations run crypto buying and selling desks that scour the digital-currency markets for large slugs of bitcoin to fill the funds’ orders.

Some analysts say it has develop into more and more troublesome to acquire bitcoin from massive holders. Public blockchain knowledge present that a lot of the world’s provide of about 19.6 million bitcoins is positioned in digital wallets that not often transfer the cash—doubtlessly as a result of they belong to long-term bitcoin holders who refuse to promote, or maybe as a result of the homeowners misplaced their passwords, rendering their cash inaccessible.

About 80% of bitcoin’s provide hasn’t modified palms throughout the previous six months, Swiss non-public financial institution Julius Baer analyst Manuel Villegas stated in a analysis be aware final week. Coupled with the ETF inflows, and knowledge suggesting restricted inventories of bitcoin accessible on the market on exchanges, that “might set the stage for an intensified provide squeeze,” Villegas wrote.

Others say there have been loads of sellers prepared to promote into the rally—doubtlessly a cause why bitcoin’s momentum stalled this week after it briefly surpassed its 2021 file.

Cumberland didn’t have an issue discovering bitcoin to satisfy the ETFs’ demand for the cash throughout the current weeks of heavy ETF inflows, stated Rob Strebel, head of relationship administration at DRW. The agency obtained a lot of that bitcoin from massive crypto traders who purchased bitcoin when it was cheaper and took the chance to take income, he stated.

“Once you see a market go parabolic, as we’ve got with bitcoin, it’s a pure promoting alternative,” Strebel stated. “And particularly as individuals bear in mind the final bull market of 2021, they’re taking some chips off the desk.”

—Angus Berwick contributed to this text.

Write to Alexander Osipovich at alexo@wsj.com