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After demolishing its 2017 all-time high, Bitcoin (BTC) has been breaking records lately after it soared past $20,000. It broke $25,000 for the first time last week before setting a new high above $27K on Sunday until it briefly traded past $29,000 yesterday.
With such a spectacular rally, demand for Bitcoin has understandably soared as well. In fact, it appears that the crypto market might be facing BTC liquidity issues as supply might no longer be able to meet demand.
Simply put, it is now more difficult to buy Bitcoin from crypto exchanges, according to Cointelegraph. While more than 18 million BTC have already mined based on data from Blockchain.com, only 4.2 million BTC are actually in circulation and available for buying and selling activities.
“Bitcoin liquidity is defined as the average ratio of received and spent BTC across entities,” Glassnode analysts revealed. “We show that currently 14.5M BTCs are classified as illiquid, leaving only 4.2M BTC in constant circulation that are available for buying and selling.”
With the recent Bitcoin rally, most investors are bullish are not selling their BTC holdings yet, contributing to the scarcity of the crypto. “Over the course of 2020, a total of 1 million additional BTC have become illiquid — investors are increasingly hodling,” the analysts added. “This is bullish, and suggests that the current bull run has been (partly) driven by this emerging #Bitcoin liquidity crisis.”
The entry of institutional investors also contributed to its increasing demand. For instance, PayPal users are now buying all newly-mined BTCs contributing it its scarcity.
“We have a #Bitcoin shortage,” Pantera Capital CEO Dan Morehead said, according to Ethereumworldnews.com. “Buyers like @PayPal are buying more than 100% of newly-issued bitcoin. When you have several big institutional investors each purchasing more than 100% of bitcoin the price is going to squeeze up.”
Another factor causing the drop in Bitcoin liquidity is the shortage of ASIC miners. “There is a big shortage of ASIC’s,” Three Arrows Capital co-founder Kyle Davies said. “Miners only need to sell enough bitcoin to cover existing USD operational costs. They are incentivized to hold all capital that would otherwise be deployed into buying hardware, in $BTC.”
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