By
Bena Ilyas
April 25th, 2024
A recent Glassnode report, among other things, has shown that there could be an oncoming Bitcoin shortage if institutional investors continue to hodl.
The amount of Bitcoin in circulation is on a continuous decline, according to Glassnode data. In the recent edition of its weekly report, the analysis company has revealed that the number of available assets is shrinking. Generally, if the current situation continues, a Bitcoin shortage might be looming.
According to Glassnode’s Uncharted #4 report released on February 26, the company’s ‘Liquid Supply Change’ chart has shown specifics on Bitcoin’s availability. The chart revealed that despite a healthy rise in the price of Bitcoin in recent times, “supply on the bitcoin blockchain is further drying up.” The report further states that this trajectory is unprecedented, especially over a long period, and could cause a “massive supply squeeze.”
Glassnode also compares this bull cycle to that of 2017. According to the report, current short-term holders are “fundamentally different” from those observed during the 2017 bull run. Glassnode suggests that hodlers from the previous bull run were a lot more willing to push their assets back into the market, probably after prices rose. However, while a conclusion can’t be made yet, it seems unlikely that the same would happen this time. The report reads:
“Institutions that are accumulating strategic positions for the long run will likely not be flooding the market with supply at the later stages this year. So in part, the new short term holders are also long term holders.”
Recent Rally to ATH Regardless of Possible Bitcoin Shortage
The possible effects of a Bitcoin shortage might still be a little far off as there are still major inflows into the market. Retail players have also been cementing their stakes into the market. Glassnode states that there have been three major money inflows into the Bitcoin market in recent times. The first two were primarily from institutional investors and other large whales holding or investing in Bitcoin. The third rise, beginning earlier in January, was mostly from retail buyers. More persons have recently been buying into the market, encouraged mostly by price increases.
A major pointer to the retail factor is an increase in new customers on the industry’s largest exchange platform. According to the report, the number of signups on Binance has increased significantly. Comparing Binance and Coinbase, the former has had a 38% increase in Bitcoin net holdings since March 2020. This is interesting because the total Bitcoin supply on all active exchanges has fallen by over 800k BTC.
Giving more credence to the retail argument, Glassnode states that institutional demand for Bitcoin has flattened in the spot market. For example, Grayscale is not buying as many Bitcoins as expected. Business intelligence company, MicroStrategy, also recently bought 328 Bitcoins. Although it spent $15 million on the purchase, this is small when compared to the previous buy. In February, MicroStrategy spent $1 billion on 19,452 BTC.