Bitcoin has been undergoing pre-halving retrace in the past few days. After it gained support at its first all-time high of $69,000, BTC price has bounced back, and now hovering around $70,000. Despite this, the leading cryptocurrency, Bitcoin, is facing unprecedented liquidity because of rising interest. Liquidity shortage resulting from factors like institutional investments and reduced sell-side liquidity may lead to a potential rise in Bitcoin price. This blog will explore the reasons behind Bitcoin’s lack of liquidity and how it could result in an increase in its value.
Liquidity Decreases As Demand Increases
Experts at CryptoQuant have raised concerns as the monthly Bitcoin demand has surged from 40,000 BTC at the beginning of the year to an impressive 213,000 BTC now. This increase in demand is driven by a range of reasons, such as heightened interest from institutional investors and a rising quantity of accumulation addresses. Yet, this rise in need is not met with a corresponding rise in sell-side liquidity.
Reasons Behind Bitcoin’s Liquidity Crisis
The lack of liquidity for Bitcoin is caused by two factors.
1. Institutional Investments and Whales
The main factor behind the increase in demand for Bitcoin is institutional investments done through exchange-traded funds (ETFs) in the United States. These spot Bitcoin ETFs have recorded a significant rise in Bitcoin holdings. This demonstrates growing appetite among institutional investors, for investing in the digital currency
Furthermore, sizable investors known as “whales” have notably boosted their Bitcoin holdings, intensifying the shortage of available funds.
2. Downward Trend in Sell-Side Liquidity:
Concurrently, the sell-side liquidity of Bitcoin is experiencing a downward trend. The total visible amount of Bitcoin held by key entities has decreased sharply, reaching a historic low. This imbalance between soaring demand and diminishing sell-side liquidity has resulted in a severe liquidity crisis, with estimates suggesting that current liquidity levels may only satisfy demand for the next twelve months.
Implications for Bitcoin Price
Although facing difficulties due to the liquidity crisis, there is a positive aspect for Bitcoin investors. In the long term, prices may increase due to a potential discrepancy in supply and demand. Analysts predict that Bitcoin prices will rise due to decreasing sell-side liquidity and high demand levels. This is further supported by the exclusion of Bitcoin on exchanges outside the US, which limits the available supply even further.
Additionally, the complexity of the situation is further increased by the fact that Bitcoin is not included on exchanges located outside of the United States. As the amount of liquid Bitcoin available in global markets decreases to only six months of demand, the resulting scarcity could lead to further price increases.
Current Bitcoin Price Market Performance
The present Bitcoin price stands at $70,306.29, reflecting a slight decrease of 0.25 within the last 24 hours. Currently, it is the leading cryptocurrency in the global cryptocurrency market, with a market capitalization of $1.38 trillion as reported by CoinMarketCap. The total number of Bitcoin coins in circulation is 19.67 million BTC.
Over the last day, the cryptocurrency’s trading volume surged by 14.235% to reach $35.88 billion. This indicates that there is decreased trading activity surrounding BTC.
However, the ‘digital gold’ has experienced a 13.47 growth in its value over the past week. Its prices also increased by 24.54% over the past month.
Bitcoin’s current price is 4% lower than its all-time high of $73,750.07 it reached on Mar 14, 2024. Nevertheless, its year-to-date growth of 152.80% shows resilience and potential for further growth.
Conclusion
As Bitcoin faces a severe liquidity crisis amidst surging demand, investors should closely monitor the evolving market dynamics. Despite the difficulties posed by the liquidity crisis, there are potential benefits in terms of price increases. By comprehending the reasons behind demand, the effects of decreasing sell-side liquidity, and the possibility of price growth, investors can strategically position themselves to take advantage of Bitcoin’s liquidity crisis and potentially profit from increased prices down the road.
