Bitcoin Demand is Booming; Bitcoin Supply is Shrinking

There are two key factors that affect the price of Bitcoin: supply and demand. And while the supply available has shrunk, demand has been increasing rapidly.

Institutional investors and companies like MicroStrategy have been plowing into the market, buying large quantities of Bitcoin—It reduces demand. At the same time, data shows that the amount of Bitcoin available on exchanges has been dropping tremendously. And this is already affecting the market.

“Bitcoin is in a crisis of supply and liquidity. This is extremely bullish! And far too low, ”Glassnode CTO Schultze-Kraft tweeted on Monday, adding,“ I think we will see this reflected significantly in the price of Bitcoin over the coming months. “

This year, Bitcoin has risen from lows of $ 4,000 in March to reach new heights above $ 24,000 in the past week – a 500% increase. Here’s a closer look at the two factors that may be causing this momentum.

Bitcoin is having a supply crisis

While Bitcoin’s total increases over time as more is mined daily, the amount of supply available on exchanges (otherwise known as liquidity) has been decreasing. And this makes it more difficult – or more expensive – for new investors to buy Bitcoin.

According to Glassnode, the supply of Bitcoin held on exchanges has declined by 20% since January. It is a trend that is found across all exchanges. Perhaps the Bitcoin has been sent to long-term storage, to custodian solutions, or to larger investment funds. But crucially, it means less availability for trade.

In fact, less than 13% of all existing Bitcoin at this time on crypto exchanges and available for trading.

Glassnode also tracks how much Bitcoin is liquid (freely available for trading) rather than illiquid, where it is held off exchanges and not available for purchase. Here, too, the amount of Bitcoin liquid has been declining, with only 12% of total supply remaining as liquid.

“Illegal entities spend less than 25% of the BTC they receive, acting as supply sinks in the network,” Schultze-Kraft He said.

Just as Schultze-Kraft believes that the Bitcoin supply crisis will not exclude regular or retail investors, nor does it believe it will deter large institutional investors from buying more Bitcoin.

“If you look at the fundamentals, if you look at the infrastructure, if you look at the security services, everything is moving forward,” said Schultze-Kraft, adding that the possibilities for institutional investors are clearly greater today than they were 2017.

First, almost a third of Bitcoin’s total is not in circulation. Nearly 15% of all Bitcoin is held in “accumulation addresses” by people whom Schultze-Kraft describes as the “true HODLers.” Add that to the the total amount of Bitcoin lost, which common estimates put to around 3 million, which means that about 30% of all Bitcoin is not actually available.

More importantly, however, is the imminent Bitcoin liquidity crisis. According to Schultze-Kraft, the supply has Bitcoin on exchanges decreased by 20% since January. That is, Bitcoin is increasingly being moved to long-term storage and away from the exchanges themselves.

What’s more, illiquid entities hold 14.4 million Bitcoin – equivalent to 78% of Bitcoin’s total supply. With only 12% of Bitcoin’s total supply held by liquid entities, this metric shows that 2020 has caused a flat strain on Bitcoin liquidity.

“Illegal entities spend less than 25% of the BTC they receive, acting as supply sinks in the network,” Schultze-Kraft He said.

But Schultze-Kraft said Decrypt that this supply crisis should not deter regular investors from buying in.

“The supply crisis as I call it, will have an impact on price, but it does not necessarily prevent retail or smaller investors from going into space,” said Schultze-Kraft.

His logic is that retail investors looking to enter Bitcoin can continue to buy into the market without taking up much space.

“Yes, supply is limited, but you still have a highly shareable Bitcoin. Even if a retail investor wants to get in, he can buy in for one Satoshi or two Satoshis, ”says Schultze-Kraft.

And, in turn, the price of Bitcoin could benefit. Schultze-Kraft said Decrypt he thinks “in the end, it’s just a market issue. If there is less supply, but demand is clearly growing, that has a noticeable impact on price. ”

Just as Schultze-Kraft believes that the Bitcoin supply crisis will not exclude regular or retail investors, nor does it believe it will deter large institutional investors from buying more Bitcoin.

“If you look at the fundamentals, if you look at the infrastructure, if you look at the security services, everything is moving forward,” said Schultze-Kraft, adding that the possibilities for institutional investors are clearly greater today than they were 2017.

All of these factors have combined to lead to increased demand for the cryptocurrency.

Increased demand for Bitcoin

An increasing number of institutional investors embracing Bitcoin have increased demand for the cryptocurrency in 2020.

Notably, Grayscale’s Bitcoin holdings have been increasing at a rate greater than the rate at which Bitcoin is mined (though some of this growth may be due to previous investors moving their assets to Grayscale).

But Bitcoin’s purchase volume really kicked in when business intelligence company MicroStrategy started investing in Bitcoin at August and September this year. The company bought $ 425 million worth of Bitcoin during this period, and has since bought further. It has now accumulated over $ 1.6 billion worth of Bitcoin.

Since MicroStrategy entered the Bitcoin arena, many other companies have followed suit. This includes Square, which invest $ 50 million—At 1% of its total assets at the time – into Bitcoin in October.

In the same month, PayPal publishing that it would launch buying and selling features for Bitcoin. This was arguably the most important factor in making Bitcoin more accessible, because it allowed Bitcoin to be used by PayPal customers in the US more easily than ever before.

In fact, two months later, about one in five PayPal customers had already traded in Bitcoin.

Fast forward to today, and the total amount of Bitcoin bought from publicly traded companies, private companies and ETF-like companies reached around 1.1 million Bitcoin. This represents over $ 25 billion worth at today’s prices, and nearly 5% of all Bitcoin existing.

Alongside these big decisions, Bitcoin has also benefited from a wealth of praise, coming from some of the world’s most famous names in traditional finance.

In May, Tudor Investments founder Paul Tudor Jones He said “The best strategy to increase profits is to own the fastest horse,” adding, “If forced, my bet is that it will be Bitcoin.”

Blackrock CIO Rick Rieder He said in November that Bitcoin was “here to stay,” and could surpass gold in the future.

But Scott Minerd, CIO of Guggenheim Global, may have made the most bullish Bitcoin headline of the year two weeks ago, when he said, “Our basic work shows that Bitcoin should be worth about $ 400,000.”

All of these headlines have produced a sense of legitimacy that Bitcoin has not enjoyed before.

Schultze-Kraft said Decrypt he thinks “in the end, it’s just a market issue. If there is less supply, but demand is clearly growing, that has a noticeable impact on price. ”

Although, of course, no one knows for sure.