About 78% of Bitcoin’s total circulating supply is illiquid, with investors pulling their assets out of exchanges to store them in self-custodial wallets in the wake of the FTX scandal.
According to on-chain data from analytics platform Glassnode, only 22% of all mined Bitcoin is being traded – a percentage which continues to decline as bitcoin tourists leave the market. Illiquid supply is best thought of as a point when Bitcoin moves to a wallet that shows no history of spending. On the other hand, liquid supply is when BTC moves to wallets that have a history of spending like hot wallets or exchanges.
Bitcoin has been trading downward for the entirety of 2022, triggered by the Luna Foundation ponzi scheme and exacerbated by insolvencies and fraud, most recently propelled by the collapse of FTX.
But the onslaught of selling pressure may be nearing its end. On-chain Bitcoin analyst, Root, noted that Bitcoin’s illiquid supply – a proxy for scarcity – is sharply increasing. Specifically, Bitcoin’s illiquid supply reached 78%, a figure not seen since the cryptocurrency’s early days (first halving). When buyers return in force, it may spark a dramatic market reaction.
My thesis stands, using Illiquid supply as a proxy for scarcity, this is the most mind-blowing chart.
Not if, but when demand comes back things will get insane. #Bitcoin pic.twitter.com/AMDDj1uutk
— Root 🥕 (@therationalroot) December 6, 2022
In other words, Glassnode data shows that less Bitcoin is available for trading, which indicates high levels of conviction, holding and accumulation. Additionally, an accelerating illiquid supply suggests that major sell-offs and capitulation events are potentially subsiding. That said, the measurement is not full proof. Back in March 2022, Bitcoin’s illiquid supply was also on the rise, yet prices fell upwards of 60% since then, most notably due to the wave of insolvencies that followed. The question is whether the wallets accumulating Bitcoin this time around remain solvent for the long-haul.
Separately, recent data from Glassnode also showed an uptick in smaller Bitcoin holders storing over one BTC in wallets. Bitcoin purchases ticked higher in November, with small entities accounting for 6.3% of the circulating supply at the time.
Bitcoin exchanges hands at $16,780 at the time of writing, down -1.7% on the day.
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