Network data shows that Bitcoin’s “net inventory ratio” has fallen to an all-time low. See what this could mean for the asset.
Bitcoin sell-side liquidity is low relative to demand at the moment
In a post on X, CryptoQuant founder and CEO Ki Young Ju discussed the recent trend in the liquid inventory to Bitcoin ratio. The Liquid Stock Ratio is an on-chain indicator that tells us how the total stock of liquidity on the sell side of the asset compares to its demand.
The asset’s sell-side liquidity stock is measured using four factors: the total exchange reserve, miner holdings, OTC desk holdings, and BTC seized by the US government.
Out of these, the foreign exchange reserve (i.e. the total amount in the wallets of centralized exchanges) is the largest potential source of sell-side liquidity.
The chart below on the right shows how the liquidity stock on the sell side of the coin has changed in recent years:
The value of the metric appears to have been going down in recent years | Source: ki_young_ju on X
In the chart, it is visible that liquidity on the sell-side of the cryptocurrency has been falling for some time. This decline is mainly driven by the depletion of foreign exchange reserves, as investors have continually attempted to promote self-custody, possibly preferring to hold their Bitcoin for long periods.
The graph on the left shows the trend in total demand for the asset. Here, demand is measured using the 30-day balance changes of “accumulation addresses.”
Accumulation addresses are those that have a history of only buying BTC and no history of selling. Exchanges and mining entities are excluded from this group, of course, since they count on sell-side liquidity regardless of whether or not they meet the condition for accumulation addresses.
Clearly, demand for Bitcoin has exploded recently as new players like exchange traded funds (ETFs) have entered the arena. All of this BTC is potentially going out of circulation and being locked up in wallets known to host one-way traffic.
Given these two developments in inventory and the demand for liquidity on the sell-side, it is not surprising to see that the net inventory ratio, which measures the ratio between the two, has fallen recently.
The trend in the Liquid Inventory Ratio for the asset over the past few years | Source: ki_young_ju on X
After the last drop in the indicator, its value actually fell to a new historical low. This means that sell-side liquidity has never been lower when compared to the demand for Bitcoin.
Given this trend, it will be interesting to see how BTC race happens from here, as the supply available for purchase continues to decrease.
BTC Price
Bitcoin had seen some declines previously, but bullish winds have seemingly returned for the coin as its price has now recovered 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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