Bitcoin ETF Inflows Could Lead to a “Sell-Side Liquidity Crisis,” Says CryptoQuant CEO
Institutional inflows into spot Bitcoin (BTC) ETFs could result in a “sell-side liquidity crisis” by September, according to Ki Young Ju, the CEO of on-chain analytics platform CryptoQuant. He predicts a significant shift in BTC supply within the next six months, as Bitcoin gains traction as an institutional investment and spot Bitcoin ETFs continue to grow.
Currently, BTC ETFs hold close to $30 billion, making it the most successful ETF launch in history. However, if this trend continues, it could create a situation where the demand for Bitcoin exceeds the available supply, leading to a liquidity crisis for Bitcoin ETFs.
Bears Struggle as Spot Bitcoin ETF Inflows Persist
Ki Young Ju emphasizes that as long as spot Bitcoin ETF inflows continue, bears in the market will have a hard time gaining control. He points out that in the previous week alone, ETFs accumulated over 30,000 BTC. In comparison, exchanges and miners hold around 3 million BTC, with US entities holding 1.5 million BTC. At this rate of inflow, Ki predicts a sell-side liquidity crisis within six months.
“At this rate, we’ll see a sell-side liquidity crisis within 6 months.”
This scenario would create scarcity in available Bitcoins for sale and limit sellers’ availability. As a result:
- The order book would become thinner
- A higher cyclical top for Bitcoin’s price may be expected
The Grayscale Bitcoin Trust (GBTC) is also experiencing daily outflows of around $500 million. However, due to Bitcoin’s price appreciation since the ETF launch in January, the value of GBTC’s BTC holdings has remained relatively stable. Ki predicts that when the tipping point of ETF demand is reached, it could have a significant impact on Bitcoin’s price.
Additionally, Ki highlights the ongoing uptrend in BTC held by “accumulation addresses,” which are wallets that only receive inbound transactions. However, these holdings would need to double before the crisis sets in. The recent surge in Bitcoin’s price has caused accumulation address holdings to cool off.
Market Awaits Bitcoin ETF Options
Last week, the US Securities and Exchange Commission (SEC) delayed its decision to approve options trading on spot Bitcoin ETFs. The response deadline for the Cboe Exchange and the Miami International Securities Exchange, both of which filed bids to offer options on Bitcoin ETFs, was extended.
Analysts predict that the introduction of BTC ETF options will attract hedge fund players who were not previously involved in the crypto ecosystem, providing them with an opportunity to participate in the market. The SEC is also considering multiple leveraged Bitcoin ETFs, including filings from asset manager Direxion for five inverse and long spot BTC ETFs, ProShares’ five leveraged Bitcoin funds, and REX Shares’ six leveraged ETFs.
Hot Take: Prepare for a Sell-Side Liquidity Crisis
Institutional inflows into spot Bitcoin ETFs are on the rise, with BTC ETFs currently holding close to $30 billion. If this trend continues, it could lead to a sell-side liquidity crisis within six months. Bears in the market will struggle as long as spot Bitcoin ETF inflows persist. This crisis would result in scarcity of available Bitcoins for sale, leading to a thinner order book and potentially driving up Bitcoin’s price beyond market expectations.
The ongoing uptrend in BTC held by accumulation addresses indicates a growing interest in Bitcoin as an institutional investment. However, these holdings would need to double before the crisis sets in. The market is also eagerly awaiting the approval of Bitcoin ETF options, which could attract new participants and further drive the demand for Bitcoin.
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