Bitcoin Liquidity Shrinks 30% as Demand Surges

Swiss bank Sygnum has noted a significant reduction in Bitcoin’s circulating supply, with liquidity shrinking by 30% over the past 18 months. This contraction in liquidity is expected to influence market volatility and potentially drive upward price movements in the near term. The bank’s latest market outlook emphasizes the impact of sustained demand amidst a diminishing supply of available BTC tokens.

The report attributes this liquidity squeeze to increased inflows into Bitcoin ETFs and growing governmental acceptance of Bitcoin reserves. These factors are contributing to what analysts describe as a ‘demand shock’, where the number of buyers exceeds the circulating Bitcoin supply, intensifying market pressure and limiting token availability.

According to Sygnum, since late 2023, over one million BTC have been withdrawn from exchanges, predominantly acquired by institutional ETF investors and corporate entities. This accumulation trend is constraining liquidity, complicating traders’ ability to manage positions during volatile market episodes.

Additionally, macroeconomic factors such as instability in the U.S. Treasury market and a depreciating U.S. dollar are enhancing Bitcoin’s appeal as a safe-haven asset. The report emphasizes that declining bond prices and rising federal debt levels are redirecting investor capital towards gold and Bitcoin, reinforcing the cryptocurrency’s role as a strategic hedge amid fiscal uncertainties.

Sygnum's observation aligns with historical patterns where periods of low liquidity have often preceded significant price increases. The bank's insights highlight the importance of monitoring liquidity levels in the cryptocurrency market. As liquidity shrinks, market participants may need to adjust their strategies to account for potential price volatility. Investors and traders should be prepared for the possibility of a major price surge, as the current conditions suggest a favorable environment for Bitcoin's value to appreciate. The bank's analysis underscores the need for vigilance and strategic planning in navigating the dynamic cryptocurrency landscape.