The chances of Bitcoin facing a sell-side liquidity crisis in the next few months are very high due to demand for the digital asset soaring to unprecedented levels.
According to a weekly report from CryptoQuant, analysts expect the present Bitcoin sell-side liquidity inventory to cover demand for six to twelve months. Conversely, a plunge in liquid inventory could pull Bitcoin’s (BTC) price northward.
Unprecedented Demand Levels
Monthly demand for Bitcoin has risen from 40,000 BTC at the start of 2024 to 213,000 BTC at writing time. CryptoQuant measures the demand by the 30-day growth in the total balance of accumulation addresses – those that only receive and hold BTC. For context, these addresses hold over 10 BTC, have no outflows, do not belong to any centralized exchanges (CEXs) or mining pools, and have been active in the last seven years.
The dramatic rise of BTC demand is driven by Bitcoin exchange-traded funds (ETFs) in the United States and other large holders, like whales. Analysts found that the year-on-year growth in the total balance of whales sits at its highest level ever. Whales now hold roughly 1.57 million BTC, a significant increase from 874,000 BTC recorded at the beginning of 2024.
While demand soars, sell-side liquidity continues to decline. The amount of BTC at sell-side liquidity entities hovers around 2.7 million BTC, down from an all-time high of 3.5 million BTC recorded in March 2020. These entities have viable and liquid assets from which investors can purchase BTC. Some of them include CEX’ Bitcoin reserves, Bitcoin over-the-counter desks, Bitcoin miners, and seized BTC in the possession of the U.S. government.
Analysts also consider Grayscale’s GBTC Bitcoin holdings as sell-side liquidity because the ETF has added to the BTC supply for sale through massive investor redemptions. Without this fund, sell-side liquidity would have fallen to its lowest level, last seen in February 2018.
Impending Sell-Side Liquidity Crisis
With Bitcoin demand skyrocketing and sell-side liquidity falling, the liquid inventory of Bitcoin has plummeted to its lowest ever in terms of monthly demand.
“We estimate that the present Bitcoin sell-side liquidity inventory is only enough to cover demand growing at the current rate for twelve months. This is only considering demand from accumulating addresses, which may be considered as the lower-end of Bitcoin demand,” CryptoQuant stated.
Removing the BTC on CEXs outside the U.S. would further reduce the Bitcoin liquid inventory to six months, as U.S. spot ETFs would only source BTC from local entities.
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