Bitcoin Supply Tightens 30% in 18 Months Driving Price Volatility

Swiss bank Sygnum released a market outlook report on Tuesday, highlighting a significant reduction in Bitcoin's circulating supply. Over the past 18 months, the estimated liquidity of the BTC supply has decreased by 30%, creating conditions that could lead to upward price volatility in the coming months. The report underscores that against a backdrop of sustained demand strength, Bitcoin's liquidity supply is facing severe tightening, which may fuel a price surge.

The report emphasizes the surge in Bitcoin ETF inflows and the increasing acceptance of Bitcoin reserves by various governments, which is driving market expectations of a 'demand shock'—a situation where there are too many buyers and too few circulating tokens. Since the end of 2023, over a million BTC have flowed out of exchanges, with ETF institutions and corporate funds being the primary forces behind this trend. This shift is putting additional pressure on traders, who may face difficulties in closing positions or topping up margins during sharp market fluctuations due to liquidity constraints.

Additionally, the turmoil in the U.S. Treasury market and the weakening of the U.S. dollar are further enhancing Bitcoin's safe-haven properties. The report notes that the decline in U.S. bond prices and the expansion of federal debt are driving investors back to gold and Bitcoin. The resilience shown by cryptocurrency in these fiscal headwinds indicates that it is emerging as a new choice for hedging tools.

The reduction in Bitcoin's available supply is a critical factor that could drive its price higher. As more institutional investors enter the market, the demand for Bitcoin is likely to increase, which could lead to a scarcity of the cryptocurrency. This scarcity, combined with the growing institutional interest, could create a bullish environment for Bitcoin. The report suggests that the current market conditions are favorable for Bitcoin's price to rise in the coming months, as the tightening of liquidity means there are fewer Bitcoins available for purchase, which could drive up the price as demand outstrips supply.

The report also notes that the institutional demand for Bitcoin is on the rise. As more traditional financial institutions and investors recognize the potential of Bitcoin as a store of value and a hedge against inflation, they are increasingly allocating a portion of their portfolios to the cryptocurrency. This trend is expected to continue, further tightening the supply of Bitcoin and driving up its price. The tightening of Bitcoin liquidity is a result of several factors, including the accumulation of Bitcoin by institutional investors and the reduction in the number of Bitcoins available for mining. As more Bitcoins are accumulated by institutional investors, the supply of available Bitcoins decreases, which could lead to a price increase. Additionally, the reduction in the number of Bitcoins available for mining could further tighten the supply, as fewer new Bitcoins are being created.

The report by Sygnum Bank suggests that the current market conditions are favorable for Bitcoin's price to rise. The tightening of liquidity, combined with the growing institutional demand, could create a bullish environment for the cryptocurrency. As more traditional financial institutions and investors recognize the potential of Bitcoin, they are increasingly allocating a portion of their portfolios to the cryptocurrency, which could drive up its price. The report highlights that the current market conditions are setting the stage for future price appreciation, and investors should be prepared for potential price surges in the coming months.