Bitcoin is heading for scarcity, data shows

According to analysts at Glassnode, the liquidity of Bitcoin is shrinking. As more institutional investors gobble the digital asset, bitcoin could be heading for liquidity crises in the future.

The laws of demand and supply are at play here and since the demand for Bitcoin from institutional investors far outweighs its current supply, the cryptocurrency could become even more scarce, leading to a higher price.

Glassnode claims that the amount of bitcoin available to entities is decreasing, thus, indicating lower liquidity. Only 4.2 million worth of bitcoin is in constant circulation for buying and selling. In a series of tweets, the firm wrote:

Bitcoin liquidity is defined as the average ratio of received and spent BTC across entities [...] We show that currently 14.5M BTC are classified as illiquid, leaving only 4.2M BTC in constant circulation that are available for buying and selling.

The data also affirms that about 78% of Bitcoin’s supply is not liquid. This year alone, $27.8 billion worth of Bitcoin became illiquid. This is an indication that people are refraining from selling the asset and holding for the long-term. Such a trend will push Bitcoin to scarcity, making it hard to accumulate, especially for retail traders.

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