[Insight] A Rally in Bitcoin, Reduced Offerings
The current growth rate of Bitcoin seems quite unusual. The price of Bitcoin has already exceeded USD 13,000, showing an almost 80 percent growth rate. This rate is the highest one among mainstream financial assets this year. While the NASDAQ Index surged only by 30 percent, the return rate of Bitcoin has been more than doubled.
Amount of Bitcoin Held in Exchanges Drops
Furthermore, the emerging signs are indicating additional growth of the Bitcoin price. One of the most prominent marks is that the amount of Bitcoin held in digital asset (cryptocurrency) exchanges are showing a stiff reduction. Usually, the digital asset (cryptocurrency) exchanges store their customers’ assets in cold wallets, and that is where such reductions are occurring.
According to the data from CryptoQuant, a digital asset analytics firm, the total amount of Bitcoin held in exchanges which was estimated around 2.8 million Bitcoin from the end of 2019 to early in the year, have dropped to 2.4 million, which is worth USD 25 billion. This amount is the lowest in the recent 17-month since May 2019. This volume is about 13 percent of the total issue amount of 21 million Bitcoin and around 15 percent of the circulating Bitcoin in total.
Reduced Bitcoin Deposit Lessens Selling Burden
Since the Corvid-19 became a global pandemic event in March 2020, the price of the Bitcoin has plummeted to the bottom. But not long after that, Bitcoin rose sharply, and the amount held in exchanges started to reduce considerably. Even there is news saying that 187,000 Bitcoin, which is worth USD 2.1 billion, has been drained from the cold wallets owned by main digital asset (cryptocurrency) exchanges over the past four months since June.
The drop of Bitcoin held in digital asset (cryptocurrency) exchanges means that the pressure of investors on selling Bitcoin is reducing. The amount of Bitcoin held in digital asset exchanges increases when investors deposit Bitcoin traded in exchanges. That is because the deposited Bitcoins are considered as potential coins for sales.
Increasing Number of Mid-Long-Term Investors and Use of DeFi
On the other hand, the ratio of Bitcoin held by institutional investors or big players is increasing, which stands around 3.74%. That is to say that the institutional investors are increasing the percentage of Bitcoin in their portfolios in order to store value or using it as a hedge against the uncertainty in the traditional market. Right now, Grayscale Bitcoin Trust (GBTC), Coinshares, Galaxy Digital Holdings, 3iQ, Voyager Digital, Riot Blockchain, and other operating companies in the fields of digital assets (cryptocurrencies) and blockchain are holding a substantial amount of Bitcoin.
Furthermore, new investments to Bitcoin made by the companies, which pushed the Bitcoin price soar-high, are also playing their part in this reduction of the amount of Bitcoin held by exchanges. After the news that Square and MicroStrategy, leading mobile payment service providers in the United States, are keeping some part of their cash-equivalent in Bitcoin, Mode, a fintech firm in London, UK, also announced that 10 percent of their cash reserve is in Bitcoin.
What’s more, it is said that some investors who have recently entered the market purchase and keep Bitcoin in cold wallets in order to hold Bitcoin for mid-to-long-term. Plus, the boom of the decentralized finance (DeFi) is also playing its part. Many Bitcoin investors prefer to transfer and keep their assets in Bitcoin token rather than in Bitcoin itself for the sake of profits from the DeFi market. Such movements are also affecting the reduction of potential coins for sales in circulation.
In all the tradable market assets, Supply and Demand are the key factors that affect the price of assets. Under the assumption that there are continuous demands, the decrease in supply will result in rising in the price. Though we cannot expect an infinite rise of Bitcoin price, since the supply amount is reducing and the demand level is consistent, Bitcoin’s price is more likely to go up, even with some adjustment.
*This research and analysis document has been prepared for the purpose of providing information that can be used as a reference based on our reliable data and information, but we cannot guarantee its accuracy or completeness.
*The document has reflected the individual’s opinion and it may not be consistent with the company’s official point of view.