On-chain statistics from Glassnode reveal that 78% of the circulating Bitcoin supply is now illiquid, meaning it is barely accessible for trading. According to the research, analysts classify 14.5 million BTC as illiquid, leaving only 4.2 million BTC in constant circulation available for buying and selling.
Bitcoin Scarcity Intensifies
One of the most treasured aspects of the Bitcoin protocol is its mathematical provability and scarcity. Satoshi Nakamoto set a hard cap of 21 million coins, and approximately 18.58 million BTC have already been mined. Despite exchanges holding large quantities of Bitcoin for trading, Glassnode's data indicates that the vast majority of the supply has exited liquid markets.
Glassnode tweeted: '78% of the circulating bitcoin supply is illiquid and therefore hardly accessible for buying. This points to a bullish investor sentiment as large amounts of BTC are being hoarded – which reduces sell pressure.' The analysts added: '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.'
Institutional Hoarding Fuels Liquidity Crisis
The on-chain data suggests that the current uptrend in crypto asset value has been fueled by liquidity issues. Throughout 2020, large financial institutions and well-known hedge fund managers purchased Bitcoin in massive quantities. The Bitcoin Treasuries list grew rapidly, with 29 well-known companies capturing 1.1 million BTC for treasury reserves.
Glassnode noted: 'Over the course of 2020, a total of 1 million additional BTC have become illiquid— investors are increasingly hodling.' This rising illiquidity suggests 'the current bull run has been (partly) driven by this emerging bitcoin liquidity crisis.'
Exchange Balances Decline
According to Bituniverse's 'Exchange Transparent Balance Rank' data from PeckShield, Etherscan, and Chain.info, exchanges currently hold fewer bitcoins than they did last year. Coinbase leads with 870,000 BTC in reserves, followed by Huobi (252k BTC), Binance (215k BTC), Bitfinex (142k BTC), and Kraken (137k BTC).
Glassnode concluded that the amount of liquid and illiquid Bitcoin in circulation has a 'clear relationship with the BTC market.' Data shows that since 2017, the illiquid supply of Bitcoin has swelled more than the issued Bitcoin from miners—a pattern observed during the 2017 crypto asset runup as well.