Bitcoin is vanishing. In demand and voraciously hoarded, it is slowly disappearing from exchanges. But what could this do to its price?
A perfect storm has arisen for Bitcoin over the past year. A change in sentiment towards it, coupled with major technical events, and shifting global economics has amped up the demand. The result has seen the supply of Bitcoin slowly vanish. No longer liquid, it is a new phase for the digital coin. But what could this spell for its price and is now a good time to buy or hold?
A Reduction in Market Liquidity
Over the past few months, Bitcoin has begun to vanish from exchanges. At the time of writing, the Bitcoin Price in real time is $107,723. In the last five days, this has remained fairly static, with small dips to the $105 mark and quick revisions. With so little change, it suggests that markets are stagnating due to this lack of supply.
There are several reasons for this. One was that last year a Bitcoin halving event occurred. This is when the reward for producing Bitcoin is cut, with the result that less enters circulation. Around six months afterwards it has historically resulted in a price uptick, which most definitely happened this time around although with a slight delay.
Bitcoin is also a finite product. There are 21 million coins in total, with 1.12 million coins yet to be mined. This leaves 19.883 in circulation, with these vanishing rapidly. For that, we may have corporations to thank.
The Adoption of Bitcoin Treasuries By Corporations
The last year has seen numerous companies, in various fields, begin to acquire Bitcoin for their treasuries. This involves changing their cash assets for the cryptocurrency.
It began with the software company known as Microstrategy, now known as Strategy. In 2021 they started to acquire Bitcoin as part of their business. Soon, they changed their model so its acquisition was their primary focus as opposed to the development of software and new products. Since then, cryptocurrency adoptions and favorable conditions have seen their assets jump in price, as has their share value.
At the time of writing, the company is in its 11th week of Bitcoin acquisition. It now holds 592,345 BTC and this is valued at over $63.6 billion dollars. It now owns double the amount of Bitcoin than its 20 largest competing rivals combined.
Many others have followed suit. At the time of writing the latest company to do so has been the Spanish coffee house Vanadi. Approved at a shareholder meeting, they are hoping to acquire up to 1 billion euros worth of cryptocurrency. Even states like Texas have begun to form treasuries.
However, it is not just corporations hoarding. People who hold large amounts of Bitcoin are just not selling. As of June this year, roughly 62% of all Bitcoin held in wallets has not moved for over 12 months. This is despite Bitcoin reaching record highs. Since 2023, only around 1 million Bitcoins have exited exchanges. This has dropped the supply available by 30% in the last 18 months, also reducing the number of tradable coins in circulation.
Bitcoin ETFs
A further reason for this shortage can be accounted for by Bitcoin Exchange Traded Funds. Introduced in the US last year, they have been seen as a way for traditional investors to get involved with Bitcoin, without having the inherent risk of owning it directly.
Generally, these Bitcoin ETFs have done extremely well, with regular inflows of large amounts. One of the major providers, Blackrock, has 662,500 BTC in its IBIT fund which accounts for around 3% of the world’s total supply.
What Is This Doing to Bitcoin?
The hoarding of Bitcoin by corporations and traditional investment products such as ETFs, could have an increased impact on volatility. This could be seen in February. Record outflows of around $3.3 billion shaved 17% off the price of Bitcoin. If this happens again, it may mean bigger drops as sell-offs quickly snowball.
Currently, this lack of demand is actually having very little impact. The price of Bitcoin has remained relatively stable for the past month, generally hovering somewhere around $107,000 with the occasional dip and correction. Its on-chain metrics have also stagnated reflecting this. Active addresses and transaction counts and doing very little.
What it does signal however is that Bitcoin is moving further from its original purpose as an alternative source of money. May 22nd marked the 15th anniversary of Bitcoin Pizza Day when Bitcoin was first used to buy a consumer good. It is unlikely this will ever happen again, with stablecoins more likely to perform this function.
In fact, it is even becoming hard for retail investors to acquire Bitcoin, never mind the man on the street. These higher entry barriers with increased volatility can mean increased premiums. This could turn people to alternative investments, such as the major altcoins, and see growth in them.
There are also voices growing against the corporate acceptance of Bitcoin. Many are warning that it is seriously depleting the NAV of many companies and any crash would have wider implications for financial markets. Thus, only time will tell how this stagnation impacts the price.
