Bitcoin is becoming increasingly difficult to buy, according to Glassnode analysts. The amount of BTC received and issued between entities decreases, which means that liquidity decreases.
As Bitcoin (BTC) the liquidity is low, it means that less BTC is available to buy and sell. In the medium term, this could make BTC even more scarce.
Bitcoin on track for an explosive 2021
Institutions have been throughout 2020 accumulate more and more Bitcoin, which has become attractive because of its fixed supply.
Concerns about inflation and rising central bank liquidity have heightened in recent months. This trend has led to high-profile institutional investors, such as Paul Tudor Jones to consider Bitcoin as a possible hedge against inflation.
Meanwhile, a trend set in motion by MicroStrategy’s $ 425 million Bitcoin purchase over the summer spilled over to other financial giants. Ultimately, PayPal, Square and even insurance companies want MassMutual entered the fray.
As a result, Bitcoin’s institutional accumulation has since accelerated. As a result, Glassnode found that there are only 4.2 million BTC in constant circulation to buy and sell. The firm wrote:
“Bitcoin liquidity is defined as the average ratio of BTC received to issued between entities. We show that currently 14.5 million BTC is classified as illiquid, leaving only 4.2 million BTC in constant circulation available for purchase and sale. “
In the past 12 months, $ 27.8 billion worth of Bitcoin has become illiquid. More long-term investors are holding their BTC and not selling their assets.
If long-term holders keep moving away from selling their BTC, the dominant cryptocurrency would become more scarce and harder to collect.
Such a trend would increase Bitcoin’s value over the longer term, fueling the ongoing bull cycle. The analysts explained:
“Over the course of 2020, a total of 1 million additional BTC have become illiquid – investors are increasingly running. This is bullish, suggesting that the current bull run is (in part) driven by this emerging #Bitcoin liquidity crisis. “
There is a variable in miners
Another factor that could cause Bitcoin’s circulating supply to decline in the near future is miners.
Kyle Davies, the co-founder of Three Arrows Capital, said there is a shortage of ASIC miners. Typically, miners deploy capital to acquire hardware such as ASIC miners. But since they are unable to buy, that could potentially boost inflows into BTC. He said:
“There is a great shortage of ASICs. Miners just need to sell enough bitcoin to cover existing USD operating costs. They are incentivized to hold in $ BTC all the capital that would otherwise be used to buy hardware. “
The combination of multiple factors such as increased HODLing activity, the likelihood that miners will sell less BTC, and the decline in Bitcoin’s liquidity could continue fuel the momentum of BTC in the first quarter of 2021.