According to analysts at Glassnode, Bitcoin is becoming harder to buy. The amount of BTC received and spent among entities decreases, which means that liquidity decreases.
If Bitcoin (BTC) liquidity is low, it means that there is less BTC available to buy and sell. In the medium term, this could make BTC even rarer.
Bitcoin on course for an explosive 2021
Throughout 2020, institutions are increasingly collecting Bitcoin, which has become compelling due to its fixed supply.
In recent months, concerns about inflation and rising liquidity in the central bank have increased. This trend has led institutional investors, such as Paul Tudor Jones, to view Bitcoin as a possible hedge against inflation.
Meanwhile, a trend started by the $ 425 million acquisition of MicroStrategy over the summer has shifted to other financial giants. Eventually, PayPal, Square and even insurance conglomerates like MassMutual took the plunge.
As a result, the institutional build-up of Bitcoin has accelerated since then. As a result, Glassnode has found that only 4.2 million BTC are constantly in circulation for buying and selling. The firm wrote:
‘Bitcoin liquidity is defined as the average ratio of received and spent BTC between entities. We show that 14.5 million BTC are currently classified as liquid, leaving only 4.2 million BTC in constant circulation available to buy and sell. ”
In the last 12 months, $ 27.8 billion in value has become illiquid. More long-term investors are holding onto their BTC and refraining from selling their assets.
As long-standing holders continue to move away from selling their BTC, the dominant cryptocurrency will become scarcer and harder to collect.
Such a trend will increase the value of Bitcoin in the long run, fueling the ongoing bulls cycle. The analysts explained:
‘Over the course of 2020, a total of 1 million additional BTC became illiquid – investors are growing more and more. This is bullish, and it indicates that the current bull run (in part) was driven by this emerging #Bitcoin liquidity crisis. ”
There is a variable among miners
Another factor that could slow down the circulating supply of Bitcoin in the foreseeable future is miners.
Kyle Davies, co-founder of Three Arrows Capital, said there is a shortage of ASIC miners. Miners will usually use capital to acquire hardware such as ASIC miners. But since they can not buy, it could possibly cause the inflow to BTC. He said:
There is a huge shortage of ASICs. Miners only need to sell enough bitcoin to cover existing USD operating costs. They are encouraged to buy all the capital that would otherwise be used in hardware, in $ BTC.
– Kyle Davies (@ kyled116) 30 December 2020
The combination of multiple factors, such as increased HODLing activity, the likelihood that miners will sell less BTC, and the decline in Bitcoin liquidity could further fuel BTC’s momentum in the first quarter of 2021.