Bitcoin, the world’s leading cryptocurrency, is currently facing an unprecedented liquidity crisis as demand surges while sell-side liquidity dwindles.
Recent analysis by CryptoQuant, an on-chain analytics platform, suggests that the available Bitcoin inventory may only be sufficient to cover demand for the next 12 months if the current growth rate persists.
TLDR
Bitcoin is facing a sell-side liquidity crisis, with demand outpacing supply and the available inventory estimated to cover only 12 months of demand at the current growth rate.
The shortage of sell-side liquidity is attributed to record Bitcoin demand, particularly from U.S. spot Bitcoin ETFs and accumulating addresses.
Bitcoin supply on U.S. exchanges, such as Coinbase, has hit the lowest level since 2018, further exacerbating the liquidity crisis.
Despite the liquidity crisis, Bitcoin’s price has shown resilience, with a recent bounce back to around $70,000 after a pre-halving retrace.
The liquidity crisis may lead to a potential rise in Bitcoin’s price due to the imbalance between soaring demand and diminishing sell-side liquidity.
The primary driver behind this liquidity shortage is the record-high demand for Bitcoin, particularly from institutional investors and accumulating addresses. The introduction of U.S. spot Bitcoin exchange-traded funds (ETFs) has significantly contributed to this increased demand, with these investment vehicles continuously accumulating Bitcoin.
Simultaneously, the sell-side liquidity of Bitcoin has been on a downward trend, further exacerbating the crisis. The total visible supply of Bitcoin held by key entities has reached a historic low, indicating a reluctance among holders to sell their assets. This imbalance between soaring demand and diminishing sell-side liquidity has created a severe shortage of available Bitcoin in the market.
Sell-side liquidity crisis is waking up old #Bitcoin imo https://t.co/iRTS374LXu
— Ki Young Ju (@ki_young_ju) March 26, 2024
The liquidity crisis is even more pronounced when considering the supply of Bitcoin on U.S. exchanges. For instance, Coinbase, the largest U.S. exchange, has seen its Bitcoin supply plummet to the lowest level since 2018. This scarcity on trading platforms further limits the available supply for buyers, intensifying the competition for the limited Bitcoin in circulation.
Despite the liquidity challenges, Bitcoin’s price has shown resilience in recent times. After experiencing a pre-halving retrace, Bitcoin found support at its previous all-time high of $69,000 and has since bounced back to hover around the $70,000 mark. This price action demonstrates the underlying strength of Bitcoin’s market, even in the face of a liquidity crisis.
The ongoing liquidity shortage may have positive implications for Bitcoin’s price in the long run. As demand continues to outpace supply, the resulting scarcity could drive prices higher. Analysts predict that the decreasing sell-side liquidity, coupled with the sustained high demand, will likely lead to an appreciation in Bitcoin’s value.
As the #Bitcoin market hits resistance at a new ATH of $73k, the Long-Term Holder cohort have ramped up their overall distribution pressure.
The market is currently seeing over $2.6B/day in realized profit, as investors start to take chips off the table.
Discover more in the… pic.twitter.com/YHXRnbUnFR
— glassnode (@glassnode) March 26, 2024
The complexity of the situation is further compounded by the exclusion of Bitcoin on exchanges located outside the United States. As the amount of liquid Bitcoin available in global markets decreases to only six months of demand, the resulting scarcity could contribute to additional price increases.
Investors and market participants should closely monitor the evolving dynamics of Bitcoin’s liquidity crisis. While the shortage of available Bitcoin presents challenges, it also offers potential benefits in terms of price appreciation. By understanding the factors driving the demand, the impact of decreasing sell-side liquidity, and the possibility of price growth, investors can strategically position themselves to capitalize on the current market conditions.
As Bitcoin navigates this unprecedented liquidity crisis, its resilience and potential for further growth remain evident.
With a year-to-date growth of over 150% and a current market capitalization of $1.38 trillion, Bitcoin continues to assert its dominance in the cryptocurrency market.
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