Some traders acquire large sums of Bitcoin to keep them for the long term. The price of the pioneering cryptocurrency has grown thanks to the savings off exchanges.
“Hodlers”, those traders who buy Bitcoin to save it, could be leading the cryptocurrency market. These traders maintain their long-term positions, which cause a lack of liquidity not seen since 2016.
Glassnode recently indicated that around 270,000 BTC have moved to “savings entities” in just the last 30 days. The outflow of large sums of Bitcoin from exchanges could be contributing to driving the price higher.
“Bitcoin is undergoing a process of liquidity depletion not seen in years. Not only are there withdrawals of funds from exchanges, but coins continually go into ‘strong hands’,” analytics firm Glassnode reported.
At least since December 2018, the shortage of Bitcoin on exchanges has been on the rise. However, it is possible to compare the current peak with the depletion that occurred between August and September 2016. At that time, the outflow of Bitcoin from the market exceeded 300,000 units per month.
Incidence of Institutional Investments in Bitcoin
This situation acquires new dimensions as this kind of depletion has only occurred four other times between 2011 and 2012. Institutional investment is a relevant factor that could be driving the scarcity of the main cryptocurrency on the market.
Records of Bitcoin Treasuries indicate that institutional investors have put almost USD 30 billion into cryptocurrencies. Given the skepticism of some institutions, this is a figure that no one could even imagine a few years ago.
In December 2020, institutional investments in Bitcoin reached USD 20 billion. There was an increase of almost USD 10 billion in just 30 days, which proves the interest that companies show in Bitcoin.
Regardless of market volatility, it seems that institutional investments in Bitcoin will continue to grow. For example, MicroStrategy founder and CEO Michael Saylor reported that his company had purchased another 314 BTC for USD 10 million. With that acquisition, the company’s holding reaches 70,784 BTC.
Given that Saylor was one of the biggest critics of Bitcoin, this case is particularly curious. This exemplifies the resistance that entrepreneurs exhibited in the past. In December 2013, Saylor attacked the cryptocurrency saying that it “is nearing its end.” On that occasion, he predicted that it would suffer the same fate of online gambling in “a matter of time.”
Reasons for the Shortage of Bitcoin
The shortage that Bitcoin has recorded the last month is the continuation of the lack of liquidity that it recorded in 2020. The analytics company CryptoQuant highlighted that there were withdrawals of around 626,000 BTC between March and December of last year.
Adding to the amount that Glassnode reported, traders with “strong hands” went from holding 270,000 BTC to roughly 900,000 BTC off the exchanges. This means that there are potentially long-term positions and those coins will not re-enter the market until further notice.
Only 22% of the amount of existing Bitcoin could be part of the market. In other words, around 4.8 million BTC, out of a total of 18.6 million units, would be changing hands.
By Alexander Salazar
