According to analysts at Glassnode, Bitcoin is becoming increasingly difficult to buy. The amount of BTC received and used between entities is decreasing, which means that liquidity is decreasing.
If Bitcoin (BTC) has low liquidity, it means that there are fewer BTCs that can be bought and sold. In the medium term, this may make BTC more scarce.
Bitcoin is expected to explode in 2021
Throughout 2020, institutions are accumulating more and more Bitcoins, and Bitcoin has become compelling due to its fixed supply.
In recent months, concerns about inflation and increased central bank liquidity have intensified. This trend has led high-profile institutional investors such as Paul Tudor Jones to see Bitcoin as a potential inflation hedge.
At the same time, the trend triggered by MicroStrategy̵
Therefore, the institutional accumulation of Bitcoin has accelerated since then. As a result, Glassnode found that only 4.2 million BTC could be bought and sold. The company wrote:
“Bitcoin liquidity is defined as the average ratio of received and used Bitcoin among entities. We show that currently 14.5 million BTC are classified as insufficiently liquid, and only 4.2 million BTC are in continuous circulation and are available for Sale.
In the past 12 months, Bitcoin worth $27.8 billion has become illiquid. More and more long-term investors hold their bitcoins and do not sell assets.
If long-term holders continue to stay away from selling their BTC, the dominant cryptocurrency will become scarcer and difficult to accumulate.
In the long run, this trend will push up the value of Bitcoin and contribute to the continued bull market cycle. Analyst explained:
“During 2020, a total of 1 million additional BTC becomes illiquid-more and more investors. This is bullish and shows that the current bull market is (in part) driven by this emerging #Bitcoin liquidity crisis Driven.”
There is a variable in the miner
In the foreseeable future, another factor that may lead to a decrease in Bitcoin circulation is miners.
Kyle Davies, co-founder of Three Arrows Capital, said there is a shortage of ASIC miners. Usually, miners invest money to purchase hardware such as ASIC miners. But given that they cannot buy, this may lead to inflows of BTC. He said:
There is a severe shortage of ASICs. Miners only need to sell enough Bitcoin to cover the existing dollar operating costs. They are incentivized to hold all funds that would have been used to purchase hardware, denominated in U.S. dollars.
-Kyle Davis (@kyled116) December 30, 2020
The combination of various factors, such as the increase in HODLing activity, the reduced possibility of miners selling BTC, and the decline in Bitcoin liquidity, may further promote the development momentum of BTC in the first quarter of 2021.