Fewer and fewer Bitcoins – can „liquidity crisis“ push BTC price?

There are fewer and fewer Bitcoins – but can the „liquidity crisis“ push the BTC price?

  • The Bitcoin rally was characterised by strong accumulation by long-term holders.
  • The number of BTC on exchanges has fallen sharply in recent months, despite the rally.
  • Analysts believe this is due to institutional participants buying bitcoin for longs.
  • These investments are expected to drive BTC up over time as the supply of coins in the market decreases.

Bitcoin supply crisis begins as masses of coins are withdrawn from exchanges

Analysts believe Bitcoin is in the midst of a supply crisis as BTC pushes to new all-time highs. With part of the recent rally largely driven by derivatives buyers, it is clear that a large amount of BTC is being amassed through spot exchanges.

Rafael Schultze Kraft, CTO of Glassnode, shared the chart below on 21 December. It shows the price of BTC and the supply Bitcoin Billionaire of bitcoin on exchanges over a macro time frame.

As you can see, the amount of bitcoin on exchanges has fallen sharply since the local highs during the February rally to $10,500. Schultze Kraft and others see this as a sign that bitcoin is in the midst of a supply and liquidity crisis, which should drive prices higher over time:

„#Bitcoin is in a supply and liquidity crisis. This is extremely bullish! And severely underestimated. I believe this will be clearly reflected in the bitcoin price in the coming months. Let’s take a look at the data.“

Chart of the price evolution of BTC over the last decade with an on-chain analysis of BTC on exchanges by Rafael Schutlze Kraft, CTO of Glassnode, Chart by Glassnode.

Buying pressure from institutions

The driving force behind this decline of Bitcoin on exchanges are institutional players, as some evidence suggests.

Just recently, for example, MicroStrategy confirmed that it had bought 30,000 Bitcoins:

„TYSONS CORNER, Va.-(BUSINESS WIRE)-Dec. 21, 2020- MicroStrategy® Incorporated (Nasdaq: MSTR) (the „Company“), the largest independent publicly traded business intelligence company, today announced that it has purchased an additional approximately 29,646 Bitcoins for approximately $650.0 million in cash, at an average price of approximately $21,925 per Bitcoin, including fees and expenses.“

This is in addition to the 40,000 Bitcoin the company has already bought in recent months. And MicroStrategy is just one of many companies currently buying the leading cryptocurrency.

Just last week, US life insurance company MassMutual confirmed that it had bought $100 million worth of BTC. The company was joined by other life insurers, though the names of these companies were not disclosed.