Key Points:
- 74% of Bitcoin’s circulating supply is now illiquid, which is at an all-time high.
- Market scarcity of Bitcoin is increasing, potentially leading to bullish price movements.
- Data from ETC Group and Glassnode show that illiquid entities hold 14.61 million BTC.
- This illiquidity is linked to Bitcoin’s upcoming halving, reinforcing the supply shock narrative.
- Glassnode defines illiquid entities based on cumulative inflows and outflows of Bitcoin.
- Market pressure could cause significant price reactions due to limited Bitcoin availability.
The Bitcoin market is experiencing a significant shift, with illiquid Bitcoin now representing 74% of the total circulating supply. This development is poised to have substantial bullish implications for the cryptocurrency’s price, as scarcity in the market typically drives demand. According to data from ETC Group and Glassnode, Bitcoin’s decreasing liquidity could signal a forthcoming supply shock, especially as the next Bitcoin halving approaches.
Illiquidity Reaches a Record 74%
Bitcoin’s liquidity status has reached a historical milestone, with 74% of its total supply categorized as illiquid. Illiquid Bitcoin refers to holdings that are not actively traded or moved between wallets, indicating a “hodling” mentality among long-term investors. The current illiquid supply stands at 14.61 million BTC, valued at over $8.26 billion. This growing illiquidity suggests that there are fewer coins available on exchanges, making Bitcoin scarcer in the marketplace.
Scarcity and Its Bullish Implications
With more Bitcoin becoming unavailable for trading, the market scarcity effect is expected to intensify. This scarcity is particularly important as Bitcoin’s halving, expected in 2024, will further reduce the new supply entering the market. ETC Group’s research head, André Dragosch, noted that this illiquidity level may exacerbate the supply shock caused by the halving event, potentially leading to price increases over the coming months.
Data Insights from ETC Group and Glassnode
ETC Group, in collaboration with blockchain data provider Glassnode, has tracked the rise of illiquid Bitcoin. Glassnode uses a metric that considers the cumulative ratio of inflows and outflows to determine an entity’s liquidity. Entities with minimal outflows are categorized as illiquid, meaning they hold onto their Bitcoin for long periods without selling or transferring it. These entities currently control a significant majority of Bitcoin’s circulating supply, highlighting the dominance of long-term holders.
Bitcoin’s Halving and Its Impact on Supply
The Bitcoin halving, which happens approximately every four years, reduces the reward for mining new Bitcoin by half. The upcoming halving in 2024 is expected to reduce the daily issuance of Bitcoin, further contributing to market scarcity. With 74% of the current supply already locked away by illiquid holders, the reduction in new supply could create upward price pressure, as demand from new investors would have to compete for a shrinking pool of available coins.
Market Response to Bitcoin Scarcity
As Bitcoin becomes increasingly scarce, the potential for significant price movements increases. Market analysts believe that the combination of reduced liquidity and the upcoming halving event will make Bitcoin more sensitive to demand surges. Even minor increases in buying pressure could cause exaggerated price reactions, particularly if illiquid holders continue to refrain from selling.
A Bullish Future for Bitcoin?
The growing dominance of illiquid Bitcoin in the market has set the stage for a possible bullish trend. As market participants anticipate the next halving and its impact on Bitcoin’s supply, the scarcity created by long-term holders could push prices higher. Investors and analysts are closely watching this trend, as it signals a potential tipping point for Bitcoin’s next major price rally.
