Bitcoin Set to Rally Amidst Decreasing Exchange Liquidity and Rising Institutional Demand
As the crypto market continues to navigate through sideways movements and brief moments of weakness, on-chain data is pointing towards a potential upcoming rally for Bitcoin. Several factors, including dwindling exchange liquidity and increasing institutional demand, are set to drive the surge for the world’s most valuable cryptocurrency in the days ahead.
Bitcoin Liquid Inventory Ratio Hit All-Time Low
According to a post by Ki Young Ju, the founder of CryptoQuant, the Bitcoin Liquid Inventory Ratio has recently reached an all-time low. This ratio takes into account the holdings of Bitcoin across major exchanges and the Grayscale Bitcoin Trust (GBTC), measuring the available BTC for trading on leading platforms.
- Lower ratio indicates decreased BTC supply for purchase on exchanges
- Results in price volatility as buyers compete for limited available coins
Historically, periods of low exchange liquidity have been correlated with price surges in Bitcoin, as decreased availability often drives up prices with each buy order placed.
Spot Bitcoin ETFs on the Rise
While the Bitcoin Liquid Inventory Ratio is dwindling, there is a growing interest in spot Bitcoin exchange-traded funds (ETFs) in the United States. These ETFs allow issuers to mint shares and sell them on exchanges, with the product regulated by the Securities and Exchange Commission (SEC).
- Each share corresponds to a certain amount of BTC
- As supply decreases, prices are expected to rise to meet demand
Spot Bitcoin ETF holders are not required to secure private keys, making it an attractive option for institutional investors looking to hold Bitcoin without the hassle of managing coins on exchanges. This trend further reduces the easily accessible supply of Bitcoin for trading purposes.
Potential Supply Crisis Ahead
If the current high demand for Bitcoin persists, combined with withdrawals from exchanges to non-custodial wallets and a shift towards spot Bitcoin ETFs, a potential supply crisis could be on the horizon.
- Exchange liquidity dropping ahead of Bitcoin halving in mid-April 2024
- Optimism around price surge post-halving event
With these factors in play, it is highly likely that Bitcoin prices may see strong support and break out to new levels in the coming trading sessions.
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