On-chain data shows that Bitcoin’s illiquid supply has risen to a new all-time high (ATH) recently. Here’s what this could mean for the asset.
About 74% of Bitcoin supply currently in circulation is “illiquid.”
In new mail On X Day, analyst James Van Straaten discussed the latest trend in Bitcoin’s illiquid supply. The concept of Bitcoin’s “liquidity” comes from on-chain analytics firm Glassnode, which defines it for an entity as “the ratio of cumulative outflows and cumulative inflows over the lifetime of the entity.”
“Entity” here refers to a group of addresses that Glassnode has determined belong to the same investor. Based on the value of this measure, entities can be classified into one of three categories: illiquid, liquid, and highly liquid. Entities with a history of high inflows but low outflows are placed in the illiquid category. More formally, the index value must be less than 0.25 for the majority of an investor’s holdings to be considered part of the illiquid supply.
At the other end of the spectrum is the highly liquid supply, which consists of the balance of entities with a liquidity ratio greater than 0.75 (i.e., those with outflows similar to inflows). The illiquid supply essentially represents the frozen portion of the BTC supply that is unlikely to move in the near future, because it is locked up in the wallets of investors with little history of selling. In contrast, a highly liquid supply corresponds to tokens that are constantly moving.
Between the two is the liquid supply, which contains entities that engage in varying degrees of trading activity (liquidity ratio greater than 0.25 and less than 0.75).
Note that the methodology used by the analytics company means that there are no sudden changes in categories when cutting; The transition between supply occurs in a smooth manner (for example, an entity with a liquidity ratio equal to exactly 0.25 contributes 50% to Illquid and 50% to Liquid).
Now, here’s the chart shared by Van Straten that shows the trends in illiquid, liquid + highly liquid supplies of Bitcoin:
The two metrics appear to have been going opposite ways in recent months | Source: @btcjvs on X
As can be seen in the chart above, the illiquid supply of Bitcoin has been on the rise since the early months of the year, meaning diamond hands have been buying coins. After the recent continuation of the increase, the metric has set a new ATH of around 14.7 million, which is equivalent to around 74% of the total BTC supply in circulation.
“The amazing part is that the divergence continues to grow between illiquid versus liquid + highly liquid,” the analyst notes. “Available commercial supply continues to decline while market sentiment continues to favor HODLing.”
Bitcoin price
At the time of writing, Bitcoin is trading at around $64,900, up more than 3% over the past week.
Looks like the price of the coin has gone through some recovery recently | Source: BTCUSDT on TradingView
Featured image from Dall-E, Glassnode.com, chart from TradingView.com