‘Bitcoin liquidity crisis’ – BTC is becoming increasingly difficult to buy on exchanges, data shows


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According to analysts at Glassnode, it is becoming increasingly difficult to buy Bitcoin. The amount of BTC received and spent between companies is decreasing, which means that liquidity is decreasing.

When Bitcoin’s liquidity (BTC) is low, there is less BTC available to buy and sell. In the medium term, this could make BTC even scarcer.

Bitcoin liquid and illiquid supply. Source: Glassnode

Bitcoin on the way to an explosive 2021

Over the course of 2020, the institutes have increasingly accumulated Bitcoin, which has become convincing due to its fixed offer.

In recent months, concerns about inflation and rising liquidity from central banks have increased. This trend has led high profile institutional investors like Paul Tudor Jones to view Bitcoin as a potential hedge against inflation.

A trend sparked by MicroStrategy’s purchase of $ 425 million bitcoin this summer carried over to other financial giants. Eventually PayPal, Square, and even insurance conglomerates like MassMutual stepped into the fray.

As a result, Bitcoin’s institutional accumulation has accelerated since then. As a result, Glassnode found that there was only 4.2 million BTC floating around for buying and selling. The company wrote:

“Bitcoin liquidity is defined as the average ratio of BTC received and issued between companies. We show that 14.5 million BTC are currently classified as illiquid and only 4.2 million BTC are in constant circulation that are available for purchase and sale. “

In the past 12 months, $ 27.8 billion worth of Bitcoin has become illiquid. Longer-term investors are sticking to their BTC and foregoing selling their assets.

If longtime owners continued to move away from selling their BTC, the predominant cryptocurrency would become scarcer and more difficult to accumulate.

Such a trend would add value to Bitcoin in the long run and fuel the ongoing bull cycle. The analysts stated:

“In the course of 2020, a total of 1 million additional BTCs became illiquid – investors are increasingly crowding. This is bullish and suggests that the current bull run has been (in part) driven by this emerging #bitcoin liquidity crisis. “

There is a variable for miners

Another factor that could cause the circulating supply of Bitcoin to decline anytime soon is miners.

Kyle Davies, co-founder of Three Arrows Capital, said there was a shortage of ASIC miners. Typically, miners use capital to purchase hardware like ASIC miners. However, since they are unable to buy, this could potentially lead to inflows into BTC. He said:

“There is a huge shortage of ASICs. Miners only have to sell enough Bitcoin to cover existing USD operating costs. They are given an incentive to put all of the capital that would otherwise be used to purchase hardware into USD BTC hold. “

The combination of several factors, such as increased HODLing activity, the likelihood of miners selling less BTC, and the decline in Bitcoin liquidity, could add further momentum to BTC in the first quarter of 2021.