Potential Supply Crisis of Bitcoin: ETF Optimism Amplifies Demand Amid Lowest Token Availability Since 2018

• Bitcoin’s available supply on exchanges drops to a five-year low, signaling potential supply constraints.
• The impending spot bitcoin ETF approval could surge the demand, amplifying the supply-demand imbalance.
• “Essentially, there’s not too much bitcoin actively liquid in the market that’s available for trade,” observes Matt Weller, global head of research at Forex.com.

With the supply of available Bitcoin at its lowest since 2018 and heightened optimism for a potential ETF approval, the cryptocurrency market might be bracing for a significant supply shock, pushing prices further up.

Depleting Bitcoin Supply: Decoding the Numbers

According to Glassnode, the available Bitcoin tokens on crypto exchanges have dwindled to a mere 2.3 million, marking the lowest point since April 2018, down from 2.6 million a year prior. Such a reduction in liquid supply is setting up the stage for a potential supply crunch, with demand expected to rise, especially if the much-anticipated spot Bitcoin ETF garners regulatory green light.

ETF Approval: Fueling the Bitcoin Rally

The potential approval of a spot Bitcoin ETF has injected optimism into the market, with many investors speculating an uptick in demand. Matt Weller, while discussing the scenario with CoinDesk TV, highlighted the significant role of this constrained supply in driving Bitcoin prices. This week alone, bolstered by the ETF speculation, Bitcoin touched the $35,000 mark – its zenith since May 2022. Weller opines that a slight uptick in demand, spurred by such speculations, can escalate Bitcoin prices rapidly, given the constrained supply. “With lower supply in the market, it only takes a small bump in demand…to really drive price higher at a rapid rate,” emphasized Weller.

The ‘Die-Hard’ Factor: Original Crypto Investors

Contributing to the limited liquidity is the behavior of original, die-hard Bitcoin investors. As per Weller’s estimation, approximately 3 million Bitcoin tokens have remained untouched, staying off the trading grid for the past decade. These stalwart investors, who’ve held onto their assets through various market cycles, present a unique challenge to liquidity. However, a continued surge in Bitcoin prices might entice a fraction of these investors to offload, marginally relieving the supply crunch.

Bitcoin’s Finite Design: A Double-Edged Sword

Unlike conventional currencies, Bitcoin was architected with a definitive supply cap – a total of 21 million tokens. Currently, of this, 19.5 million tokens are already in circulation. This inherent scarcity design, while ensuring Bitcoin’s value proposition, also underscores the challenges tied to demand-supply dynamics. With increasing institutional interest and broader mainstream acceptance, the balance between Bitcoin’s demand and its finite supply will be crucial in shaping its future market trajectory.

Conclusion

The evolving landscape of Bitcoin, marked by dwindling supply and heightened demand optimism, suggests a looming supply shock. As the crypto market keenly watches for regulatory developments, especially around the spot Bitcoin ETF, the intricate interplay of supply constraints, design limitations, and investor behaviors will dictate Bitcoin’s next phase. For investors and market stakeholders, understanding these dynamics is pivotal in charting informed investment strategies.