According to CryptoPotato, there is a very high chance that Bitcoin will face a sell-side liquidity crisis in the coming months as demand for digital assets surges to unprecedented levels.
Analysts expect current Bitcoin seller liquidity inventories to cover six to 12 months of demand, according to a weekly report from CryptoQuant. Conversely, a significant drop in liquidity inventories could drive Bitcoin (BTC) prices higher. Monthly Bitcoin demand has risen from 40,000 BTC in early 2024 to 213,000 BTC currently. CryptoQuant measures demand by accumulating 30-day growth in the total balance of addresses that exclusively receive and hold BTC.
The sharp rise in Bitcoin demand is driven by U.S.-based Bitcoin exchange-traded funds (ETFs) and other large holders such as whales. Analysts found that the total balance of whales increased year-on-year to the highest level ever. Whales now hold about 1.57 million BTC, far higher than the 874,000 BTC recorded in early 2024. Meanwhile, sell-side liquidity continues to decline. The amount of BTC held by sell-side liquidity entities is about 2.7 million BTC, down from the all-time high of 3.5 million BTC in March 2020. These entities have viable and liquid assets from which investors can buy BTC. Some of these entities include CEX's Bitcoin reserves, Bitcoin OTC desks, Bitcoin miners, and seized BTC held by the U.S. government. Analysts also consider Grayscale's GBTC Bitcoin holdings as sell-side liquidity, as the ETF has increased the supply of BTC to be sold through a large number of investor redemptions. Without this fund, sell-side liquidity would have fallen to its lowest level since February 2018.
As Bitcoin demand soars and sell-side liquidity declines, Bitcoin's liquid inventory has fallen to an all-time low. CryptoQuant said: "We estimate that the current Bitcoin sell-side liquidity inventory can only meet demand growing at the current rate for 12 months. This only takes into account demand from accumulation addresses, which may be considered a lower limit for Bitcoin demand." After removing BTC on CEXs outside the United States, Bitcoin's liquid inventory will be further reduced to six months, as US spot ETFs will only purchase BTC from local entities.