Despite the surging prices the past couple of months, Bitcoin
is massively being stored by its investors for the longer term. In the past 30 days, 270,000 Bitcoins (BTC) have been withdrawn from the market.
Market data collected by Glassnode company shows that those 270,000 Bitcoins have moved from "liquid" wallets to "illiquid" wallets in the past month, almost twice as much as at the beginning of January.
The data shows that Bitcoin supply has not only become scarcer as of January. Over the past 9 months, an increasing scarcity can be seen, because more and more Bitcoin is stored for the long term. At the moment, only 21.3% of Bitcoin is actively traded and there are no signs of a reversal yet.
The diminishing liquidity in Bitcoin's supply could be beneficial to the price with new retail and institutional investors trying to get their hands on another piece of Bitcoin. The less BTC there is on the market, the higher the prices eventually. So about 80% of all available Bitcoins can now be found in "illiquid" wallets.
According to Glassnode, a Bitcoin wallet is considered illiquid if less than 25% of the BTC ever received is transferred out of the wallet. On the other hand, a highly liquid wallet is a wallet where more than 75% of the received BTC has been transferred out of the wallet again.
Of the 4 million BTC considered highly liquid by Glassnode, 61% is owned by exchanges. Their numbers are also declining, which is in line with the growing illiquidity previously identified. Central exchange reserves have declined by 13.8% since July 2020.
A plausible explanation for this shift from liquid to illiquid may be that more and more institutional investors are entering the market. According to the wallet tracking service Bitcoin Treasuries, an estimated 6.5% of all available Bitcoin is now in the hands of 33 institutional investors.
For example, the investment fund Grayscale has added some 25,000 BTC to a portfolio that already consisted of 641,523 BTC on January 20, 2021 in recent days. To put this in perspective, approximately 900 new Bitcoins are minted every day. According to Glassnode, only a third of these have been sent to exchanges since July 2020.
All in all, it comes down to the fact that the mining of new Bitcoins cannot compete with the increasing demand and the decreasing supply on the market. Less and less Bitcoins are actively traded, but the volume in the market continues to increase. In the short term, this says nothing, but this shift has now been taking place for 9 months and has already proved very favorable for the price. Who knows what the coming months may bring.