In recent times, Bitcoin’s Illiquid Supply has surged to unprecedented levels, marking a new all-time high (ATH). This development holds potential implications for the cryptocurrency market and those investing in Bitcoin.
Understanding Bitcoin’s Illiquid Supply: 74% of Circulating BTC Locked Away
Analyst James Van Straten recently highlighted an intriguing trend in Bitcoin’s Illiquid Supply. The concept of liquidity in the context of Bitcoin is derived from the insights of the on-chain analytics firm Glassnode. According to Glassnode, liquidity for a Bitcoin entity is defined as the ratio of cumulative outflows to cumulative inflows over its lifespan.
An ‘entity’ refers to a group of addresses that Glassnode has identified as belonging to the same investor. Based on a liquidity metric, entities fall into three categories: Illiquid, Liquid, and Highly Liquid. An entity is considered Illiquid if it has a history of significant inflows but minimal outflows, with a liquidity ratio below 0.25. This categorization implies that most of the investor’s holdings are part of the Illiquid Supply.
Conversely, the Highly Liquid Supply encompasses entities with a liquidity ratio exceeding 0.75, indicating a balance between inflows and outflows. These tokens tend to circulate frequently. In the middle is the Liquid Supply, representing entities with a liquidity ratio between 0.25 and 0.75, reflecting moderate trading activity.
It’s important to note that the methodology used by the analytics firm ensures a smooth transition between categories, avoiding abrupt changes at the cutoffs. For instance, an entity with a liquidity ratio precisely at 0.25 contributes equally to both Illiquid and Liquid Supply.
Recent Trends in Bitcoin’s Illiquid Supply
The chart shared by Van Straten offers valuable insights into the dynamics of Bitcoin’s Illiquid and Liquid + Highly Liquid Supplies. In recent months, these metrics have shown divergent trends. The Illiquid Supply, representing ‘diamond hands’ investors, has been steadily increasing since the beginning of the year. This rise indicates that more coins are being held by investors with a limited history of selling, signifying a growing preference for long-term holding.
As a result of this trend, the Illiquid Supply has reached a new ATH, approximately 14.7 million BTC, equivalent to about 74% of the total circulating Bitcoin supply. This significant shift suggests a diminishing available trading supply, while market sentiment appears to favor HODLing.
Current Bitcoin Price Trends
At present, Bitcoin is trading around $64,900, reflecting an increase of over 3% in the past week. This recent price recovery aligns with the ongoing accumulation of Illiquid Supply, highlighting the potential impact on Bitcoin’s market dynamics.
In conclusion, the surge in Bitcoin’s Illiquid Supply to a new ATH signifies a notable shift in the behavior of investors. As more coins are held by long-term holders, the available trading supply diminishes, potentially influencing market sentiment and price trends. For those closely monitoring Bitcoin, understanding these dynamics is crucial for making informed investment decisions.
