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Bitcoin in serious “supply and liquidity” crisis

Rafael Schultze-Kraft, CTO of Glassnode, said Monday that Bitcoin was in the middle of a serious "supply and liquidity" crisis as demand for the asset from institutional investors heated up.

In recent months, Bitcoin has been gobbled up like no tomorrow by banks and accredited funds. And now an expert is saying that the asset is in the middle of a sell-side crisis.

He said the metrics were “extremely bullish and highly underrated,” referring to on-chain data, adding they indicated Bitcoin was poised in the near future for a bull run.

Demand has never been more important for Bitcoin. The asset went from a niche, underground electronic currency to a hedge rivaling gold this year. Companies such as MicroStrategy, Square and funds such as Fidelity, Ruffer and Guggenheim have either bought or applied an intention to buy the pioneer cryptocurrency despite inflation concerns and a bleak economic outlook.

In turn, that led to Bitcoin topping the iconic $20,000 mark earlier this month, setting a new all-time high of $24,100. But on-chain data shows demand is increasing, as per Schultze-Kraft, and there’s just not enough Bitcoin around to sell.

Schultze-Kraft said that “HODLers” now owned 14 percent of all Bitcoin, or addresses where the asset only ever had inflows and was never invested once. More than 2.7 million Bitcoin are now kept in wallets like that, he said.

Next, the Glassnode CTO claimed that the actual amount of Bitcoins in circulation will never exceed the 21 million figure as a result of hacks, wallet losses, and other compromises. He reported that 3 million Bitcoin were permanently “lost,” comprising 16 percent of the overall stock.

Liquidity for trade was another point. Schultze-Kraft said that the BTC was quickly disappearing from exchange. The asset was instead sent to long-term storage, custodian wallets, and other related avenues, with illiquid entities now owning over 14.4 million BTC, comprising 78 percent of the existing stock.

We are witnessing the longest exchange fund depletion ever. The BTC supply on exchanges has dropped a staggering 20 percent since January, he tweeted, adding: “Illiquid entities spend less than 25% of the BTC they receive, acting as supply sinks in the network. Only 12% of the BTC supply is liquid.” Meanwhile, Schultze-Kraft said that since the last halving in 2020,

the amount of miner unspent availability, identified by the number of Bitcoin that have never left the miner address, has been accelerating. This meant that miners without any intention of selling were now sitting at over 1.7 million Bitcoin. Instead, they were hoping for a market increase, with some predict pegging Bitcoin in 2021 to cross more than $250,000. “Are miners cashing out at these prices? I don’t think so,” the analyst concluded.

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