Bitcoin “Liquid Inventory Ratio” Hits All-Time Low, What It Means
March 27 2024 - 1:30PM
NEWSBTC
On-chain data shows the Bitcoin “Liquid Inventory Ratio” has
dropped to an all-time low. Here’s what this could mean for the
asset. Bitcoin Sell Side Liquidity Is Low Relative To Demand Right
Now In a post on X, CryptoQuant founder and CEO Ki Young Ju
discussed the recent trend in the Liquid Inventory Ratio for
Bitcoin. The Liquid Inventory Ratio is an on-chain indicator that
tells us about how the total sell-side liquidity inventory of the
asset compares against its demand. Related Reading: Bitcoin
Sentiment Returns To Extreme Greed As BTC Breaks $71,000 The
sell-side liquidity inventory of the asset is gauged using four
factors: the total exchange reserve, miner holdings, OTC desk
holdings, and US government-seized BTC. Out of these, the exchange
reserve (that is, the total amount sitting in the wallets of
centralized exchanges) is the largest potential source of sell-side
liquidity. The chart on the right below shows how the sell-side
liquidity inventory of the coin has changed over the last few
years: The value of the metric appears to have been going down in
recent years | Source: ki_young_ju on X From the graph, it’s
visible that the sell-side liquidity of the cryptocurrency has been
heading down for a while now. This decline is mostly driven by the
depletion of exchange reserves, as investors have been continuously
pushing towards self-custody, possibly preferring to hold onto
their Bitcoin for extended periods. The chart on the left displays
the trend in the total demand for the asset. Here, the demand is
measured using the 30-day balance changes of “accumulation
addresses.” The accumulation addresses are those that have a
history of only buying BTC and no history of selling. Exchanges and
miner entities are excluded from this cohort, of course, as they
count under the sell-side liquidity instead, regardless of whether
they satisfy the condition for accumulation addresses or not.
Clearly, the demand for Bitcoin has exploded recently as new
players like exchange-traded funds (ETFs) have entered into the
arena. All this BTC is potentially going out of circulation and
being locked into the wallets known for hosting a one-way traffic.
Given these two developments in the sell-side liquidity inventory
and demand, it’s not surprising to see that the Liquid Inventory
Ratio, which measures the ratio between the two, has plunged
recently. The trend in the Liquid Inventory Ratio for the asset
over the past few years | Source: ki_young_ju on X Following the
latest decline in the indicator, its value has, in fact, dropped to
a new all-time low. This means that the sell-side liquidity has
never been this low when compared to the demand for Bitcoin.
Related Reading: Bitcoin Coinbase Premium Returns To Neutral:
Buying Push Already Over? Given this trend, it will be interesting
to see how the BTC rally plays out from here, as the supply
available to buy is only continuing to tighten. BTC Price Bitcoin
had seen some drawdown earlier, but bullish winds have seemingly
returned for the coin as its price has now recovered back above
$70,200. Looks like the price of the asset has enjoyed a sharp
surge over the last few days | Source: BTCUSD on TradingView
Featured image from Shutterstock.com, CryptoQuant.com, chart from
TradingView.com
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