It is very likely that Bitcoin will face a sell-side liquidity crisis in the coming months as demand for the digital asset surges to unprecedented levels.
According to CryptoQuant's weekly report, analysts expect the current Bitcoin sell-side liquidity inventory to cover 6-12 months' worth of demand. Conversely, a sharp decline in liquidity stocks could cause the price of Bitcoin (BTC) to rise.
unprecedented demand levels
Monthly demand for Bitcoin has increased from 40,000 BTC at the beginning of 2024 to 213,000 BTC at the time of writing. CryptoQuant measures demand by the 30-day increase in the total balance of accumulation addresses that only receive and hold BTC. For context, these addresses hold more than 10 BTC, have no outflows, are not part of a centralized exchange (CEX) or mining pool, and have remained active for the past seven years.
The dramatic increase in BTC demand is being driven by US Bitcoin exchange-traded funds (ETFs) and other large holders like whales. Analysts found that the year-over-year increase in total whale balances was at the highest level ever. The whale currently holds approximately 1.57 million BTC, a significant increase from the 874,000 BTC recorded in early 2024.
While demand is surging, sell-side liquidity continues to decline. The BTC volume of sell-side liquidity entities remains at around 2.7 million BTC, down from the all-time high of 3.5 million BTC set in March 2020. These entities have viable and liquid assets from which investors can purchase BTC. Among them are CEX's Bitcoin reserves, Bitcoin over-the-counter desks, Bitcoin miners, and seized BTC owned by the US government.
Analysts also view Grayscale's GBTC Bitcoin holdings as sell-side liquidity as the ETF increases its BTC supply for sale through large investor redemptions. Without this fund, sell-side liquidity would have fallen to its lowest level since February 2018.
Imminent sell-side liquidity crisis
As demand for Bitcoin has soared and liquidity on the sell side has declined, the current stock of Bitcoin has plummeted to an all-time low on a monthly demand basis.
“We estimate that the current Bitcoin sell-side liquidity inventory is sufficient to cover 12 months of increasing demand at the current pace. It only takes into account the demand due to the accumulation of
Removing BTC from CEX outside the US will further reduce Bitcoin's liquid inventory to 6 months, as US spot ETFs only source BTC from local companies.
