Bitcoin Demand Skyrockets, Liquidity Crisis Looms

CryptoQuant analysis reveals a "sell-side liquidity crisis," indicating that Bitcoin demand is rapidly outpacing supply. The report estimates that current sell-side liquidity can only meet demand for 12 months, with the supply dropping to six months if excluding Bitcoin on non-US exchanges. The surge in demand is attributed to US spot Bitcoin ETFs, while old supply is being reactivated as the supply squeeze intensifies.

Bitcoin Demand Surges, Sell-Side Liquidity Crisis Imminent

March 26, 2023

In a bombshell report released today, blockchain analytics firm CryptoQuant has identified a looming "sell-side liquidity crisis" for Bitcoin (BTC), warning that the available supply of the cryptocurrency may soon fall short of escalating demand.

Record Demand, Dwindling Supply

The report, titled "Weekly Crypto Report," highlights a surge in Bitcoin demand over the past year, largely attributed to the introduction of spot Bitcoin exchange-traded funds (ETFs) in the United States. This relentless buying pressure has significantly depleted the available supply of Bitcoin, setting the stage for a potential supply crunch.

According to CryptoQuant's analysis, the current liquid inventory of Bitcoin is at its lowest level ever when measured against demand. The report estimates that this inventory is only sufficient to meet demand growing at the current rate for a mere twelve months.

Diminishing Liquidity, Rising Prices

The report further reveals that the sell-side liquidity for Bitcoin has been declining rapidly. This means that fewer sellers are willing to part with their Bitcoin at current prices, contributing to a tightening of supply and upward pressure on prices.

"Record Bitcoin demand paired with declining sell-side liquidity has resulted in the liquid inventory of Bitcoin plunging to the lowest ever in terms of months of demand," the report states.

Exchanges Excluded, Supply Crunch Intensifies

The report also notes that the analysis only considers demand from accumulating addresses, which are wallets that have received but not sent any Bitcoin. This suggests that the net demand for Bitcoin may be even higher.

Moreover, if Bitcoin held on exchanges outside the United States is excluded from the analysis, the situation becomes more dire. In that scenario, the Bitcoin liquid inventory would only be sufficient to meet demand for six months. This is because US spot Bitcoin ETFs can only acquire Bitcoin from US-based entities.

Awakening of Old Supply

In a related development, CryptoQuant CEO Ki Young Ju pointed to data indicating that Bitcoin mined in 2010 and dormant since then has suddenly become active. This may be a sign that the sell-side liquidity crisis is "waking up" old supply, as investors seek to capitalize on the rising demand.

ETF Inflows and Outflows

Despite the prevailing liquidity crisis, Bitcoin ETF inflows and outflows have been showing volatility. Following a period of consecutive net outflows, the latest data from Farside, a UK-based investment firm, shows net inflows of $400 million for March 25, the highest in two weeks.

Implications for Bitcoin's Future

The sell-side liquidity crisis for Bitcoin has profound implications for its future price trajectory. As demand continues to outstrip supply, the cryptocurrency may face upward price pressure, potentially leading to a sustained bull market. However, it is important to note that the cryptocurrency market remains volatile, and investors should exercise caution when making investment decisions.

This article does not constitute investment advice or recommendations. Investors should conduct their own due diligence before making any financial decisions.