The Shrinking Supply of Bitcoins: Potential Liquidity Problems and Supply Shock

2023-07-07 15:16:06
The supply of bitcoins available on crypto exchanges is constantly shrinking, which may cause supply shock and liquidity problems in the future. The available supply of bitcoins is decreasing significantly, which can lead to a shortage. This situation might cause a supply shock, especially if institutional investors start buying in larger quantities, which seems increasingly likely. After the world’s largest fund manager, BlackRock, submitted the bitcoin ETF application, Fidelity Investments also joined and more and more institutional investors are expected to follow their example, which you can read more regarding in our previous article. Declining liquidity The effects of the mentioned phenomena are far from clear. The combination of the entrance of the big players and the decreasing supply can push the price up, which according to some might even mean the next bull market. However, this is overshadowed by the fact that the supply of bitcoin is constantly decreasing. According to CryptoQuant data, the reserves held by stock exchanges decreased by 14% in one year, but we also experienced longer bear markets. Thus, even if it is not certain that the decrease in supply guarantees a bull market, it does indicate a change in investment patterns. More and more investors seem to be keeping their cryptos off-exchange, which implies a longer-term investment strategy. A decrease in the available supply can lead to liquidity problems on the stock exchanges. A certain level of liquidity is required for both traders and investors to switch positions at will. In the absence of this, the appearance of a whale can cause a spectacular exchange rate movement, or the so-called slippage, which has a bad effect on trading, especially for large investors. According to Material Indicators’ chart, bitcoin whales were forced to split buys and sells into multiple orders in early May to avoid slippage losses. Better scenario If a strong bull market were to occur, it would certainly result in an increase in supply. Experience shows that as the price increases, sales and thus the stock market supply also increase. In this way, it would be possible for the currently decreasing supply to start rising rapidly, and liquidity problems and very radical exchange rate movements would disappear. Published on the BitcoinBázis page.
1688744119
#bitcoins #bought #running #happen #supply