Will Bitcoin Burst? Demand Outpaces Supply, Liquidity Crisis A Threat

The Bitcoin market is brewing with anticipation as a confluence of surging demand and dwindling supply threatens to trigger a liquidity crisis. This potential shortage of available Bitcoin comes on the heels of the upcoming halving event, historically a bullish period for the world’s most popular cryptocurrency.

Bitcoin Demand Up?

CryptoQuant, a prominent on-chain data analytics firm, recently revealed a staggering increase in Bitcoin demand. Over the past month, monthly demand skyrocketed from 40,000 BTC to a whopping 213,000 BTC. This meteoric rise is attributed to a perfect storm of factors, including the launch of new Bitcoin exchange-traded funds (ETFs) and aggressive accumulation by high net worth investors, often referred to as “whales.”

In 2024, monthly demand surged from 40K to 213K $BTC, driven by ETFs & whale activity.

Meanwhile, available #Bitcoin dropped to 2.7M, signaling the tightest liquidity since March 2020.

Is this the beginning of a liquidity crisis? Let’s look into this 🧵

— CryptoQuant.com (@cryptoquant_com) March 28, 2024

On the other side of the equation, the total circulating supply of Bitcoin has plunged to just 2.7 million coins, the lowest level since the market crash of March 2020. This widening gap between surging demand and contracting supply paints a picture of a potential market squeeze. According to basic economic principles, such a scenario could send Bitcoin’s price significantly higher in the near future.

Total crypto market cap is currently at $2.5 trillion. Chart: TradingView

However, analysts warn that a market starved of liquidity can be a double-edged sword. While it might fuel a price surge, it can also lead to wild price swings in either direction. In an illiquid market, large trades can have an outsized impact on the price, making Bitcoin vulnerable to extreme volatility. This underscores the importance for investors to closely monitor liquidity levels in the coming days.

BTC weekly price action. Source: Coingecko

The Much-Anticipated Halving: How It Will Impact BTC Price

With the halving event less than 20 days away, all eyes are on how this historical price catalyst will play out this time around. The halving refers to a pre-programmed event in Bitcoin’s code that cuts the block reward for miners in half, effectively slowing down the rate at which new Bitcoins are created. This event has historically coincided with bullish periods for Bitcoin, and many investors are eagerly waiting to see if this cycle will hold true.

#Bitcoin

BTC is consolidating near the new ATH. In the previous cycle, we saw price going sideways for 150 days after the halving before it started pumping again.

It wouldn’t be unusual to see something similar happen near the halving.

Any dips before or after the halving… pic.twitter.com/rsNMMB9Qwi

— Mags (@thescalpingpro) March 29, 2024

Popular crypto analysts are offering their insights into Bitcoin’s price trajectory in the face of these converging factors. Analyst Mags predicts that Bitcoin might enter a period of sideways trading near its current all-time high of $70,000. Mags draws a parallel to the 2016 halving cycle, where the price consolidated for roughly 150 days before launching into a historic bull run. Mags views any short-term dips as opportunities for investors to accumulate Bitcoin before a potential parabolic surge.

The coming weeks will be crucial for Bitcoin as it navigates the interplay of surging demand, limited supply, and the impending halving event. While the potential for a liquidity crisis exists, the historical bullish sentiment surrounding the halving suggests a possible breakout for Bitcoin. Investors are advised to tread cautiously and closely monitor market conditions, keeping an eye on both price movements and liquidity levels.

Featured image from Pexels, chart from TradingView