Bitcoin’s Illiquid Supply Reaches Record Levels

Recent data indicates that nearly 74% of all bitcoins produced are classified as illiquid. This unprecedented level of illiquid supply suggests an increasing scarcity of the cryptocurrency in the market, which could have significant implications for its price trajectory. According to data from ETC Group and Glassnode, illiquid entities currently hold approximately 14.61 million BTC, valued at over $826 million based on current market prices. This accounts for 74% of the total circulating supply of 19.75 million bitcoins.

Understanding Illiquid Supply

Illiquid bitcoins are those that are not actively traded or moved. They are typically held by long-term investors who are less likely to sell their holdings in the near future. As more bitcoins become illiquid, the available supply for trading diminishes, which can lead to increased demand and potentially drive prices higher. This scarcity effect is particularly impactful in a market that is sensitive to supply fluctuations.

According to André Dragosch, the head of research at ETC Group, “Bitcoin’s illiquid supply reached a new all-time high of almost 74% of circulating supply according to data provided by Glassnode, signaling that the Halving-induced supply shock is actually intensifying. This should provide an increasing tailwind for Bitcoin and other crypto assets over the coming months.” His insights highlight the relationship between Bitcoin’s halving events—where the reward for mining new blocks is cut in half—and the resultant supply dynamics.

The Impact of Supply Shock

Halving events, which occur approximately every four years, reduce the rate at which new bitcoins are generated, thereby tightening supply. As the supply becomes limited, if demand remains constant or increases, the price is likely to rise. The current state of illiquid supply suggests that there may be fewer bitcoins available for sale, which could lead to heightened competition among buyers in the market.

Glassnode classifies illiquid entities by analyzing the ratio of cumulative outflows to inflows over the lifespan of the entity. This analysis helps to identify which wallets are effectively “holding” their bitcoins rather than trading them, indicating a long-term bullish sentiment among investors.

Market Conditions and Price Trends

As of now, Bitcoin is trading around $56,600. Despite this price level, it is important to note that the cryptocurrency experienced a significant bull run earlier this year, reaching all-time highs above $70,000 in the first quarter. However, the market has since seen a stall, which raises questions about the future price movements of Bitcoin and how the increasing illiquid supply may influence investor behavior.

Potential Outcomes

• Increased Demand: If demand for Bitcoin picks up, the limited supply may lead to a sharp increase in price.
• Long-term Holding: With more investors choosing to hold their bitcoins, the market might see less volatility as fewer coins are available for trading.
• Market Sentiment: The perception of scarcity can drive more investors to enter the market, potentially creating a self-fulfilling prophecy where increased interest leads to higher prices.
• Investor Behavior: Understanding the dynamics of illiquid supply can help investors make informed decisions about buying or selling their assets.

In summary, the current landscape of Bitcoin’s illiquid supply presents both challenges and opportunities for investors. As the market continues to evolve, the interplay between supply, demand, and investor sentiment will play a crucial role in determining Bitcoin’s future price movements.