On-chain analyst says Bitcoin in serious “supply and liquidity” crisis

Bitcoin has been gobbled up like no tomorrow by institutions and accredited funds in the past months. And an analyst now says the asset is in midst of a sell-side crisis.

Glassnode CTO Rafael Schultze-Kraft said Monday that Bitcoin was in midst of a severe “supply and liquidity” crisis as demand for the asset heated up among institutional buyers.

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

#Bitcoin is in a supply and liquidity crisis.

This is extremely bullish! And highly underrated.

I believe we will see this significantly reflected in Bitcoin’s price in the upcoming months.

Let’s take a look at the data.

A thread 👇👇👇 pic.twitter.com/vx6rJmiloE

— Rafael Schultze-Kraft (@n3ocortex) December 21, 2020

Demand for Bitcoin has never been more significant. This year, the asset went from a niche, underground electronic currency to a hedge that rivals gold. Firms like MicroStrategy ( which holds $1.2 billion worth of BTC), Square ($50 million in BTC), and funds like Fidelity, Ruffer ($100 million in BTC), and Guggenheim have either purchase or filed an intention to purchase the pioneer cryptocurrency amidst inflation fears and a bleak economic outlook.

That has, in turn, led to Bitcoin topping the mythical $20,000 level earlier this month and set a new all-time high of $24,100. But as per Schultze-Kraft, on-chain data shows demand is growing and there’s just not enough Bitcoin around to sell.

Why Bitcoin faces a sell-side crisis

Schultze-Kraft said 14% of all Bitcoin was now held by “HODLers,” or addresses where the asset only ever saw inflows and was once never spent. Over 2.7 million Bitcoin was now held in such wallets, he noted.

Next, the Glassnode CTO stated that as a result of hacks, wallet losses, and other compromises, the actual number of Bitcoin in circulation would never reach the 21 million figure. He estimated 3 million Bitcoin to have been “lost” forever, representing 16% of the total supply.

3/ Institutional #BTC Demand@Grayscale (573M BTC), @MicroStrategy ($475M), @sqcrypto ($50M), Ruffer ($745M), @massmutual ($100M) – all buying up supply.

Do you really think they’re alone? Of course not.

Expect many more on the move. They’re coming – gradually, then suddenly.

— Rafael Schultze-Kraft (@n3ocortex) December 21, 2020

Exchange liquidity was another point. Schultze-Kraft said BTC was rapidly vanishing from exchanges. Instead, the asset was being sent to long-term storage, custodian wallets, and other similar avenues, with over 14.4 million BTC now held by illiquid entities — a figure representing 78% of the current supply.

“We’re seeing the longest depletion of exchange funds. Since January, the BTC supply on exchanges dropped a staggering 20%,” 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.”

6/ Liquid #Bitcoin Supply

14.4M BTC is held by illiquid entities – that is 78% (!) of the current supply.

Illiquid entities spend less than 25% of the BTC they receive, acting as supply sinks in the network.

Yes, only 12% of the BTC supply is liquid, according to this metric. pic.twitter.com/rtnMPOCrzp

— Rafael Schultze-Kraft (@n3ocortex) December 21, 2020

Meanwhile, Schultze-Kraft said that the amount of miner unspent supply, defined by the number of Bitcoin that have never left the miner address, had been accelerating since the last halving in 2020.

This meant that miners were now sitting at over 1.7 million Bitcoin without any intention to sell. Instead, they were waiting for a surge in prices, with some estimates pegging Bitcoin to reach over $250,000 in 2021. “Are miners cashing out at these prices? I don’t think so,” the analyst concluded.

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