The bitcoin market is brewing in anticipation as a confluence of rising demand and shrinking 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.
CryptoQuant, a prominent on-chain data analytics company, recently revealed a staggering surge in demand for bitcoin. Over the past month, monthly demand has 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.”
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In 2024, monthly demand increased from 40,000 to 213,000 twitter.com/search?q=%24BTC&src=ctag&ref_src=twsrc%5Etfw” rel=”nofollow noopener” target=”_blank”>$btcdriven by ETFs and whale activity.
Meanwhile available twitter.com/hashtag/bitcoin?src=hash&ref_src=twsrc%5Etfw” rel=”nofollow noopener” target=”_blank”>#bitcoin fell to 2.7 million, indicating the tightest liquidity since March 2020.
Is this the beginning of a liquidity crisis? Let's analyze this
– CryptoQuant.com (@cryptoquant_com) twitter.com/cryptoquant_com/status/1773357439989039265?ref_src=twsrc%5Etfw” rel=”nofollow noopener” target=”_blank”>March 28, 2024
On the other side of the equation, the total circulating supply of bitcoin has plummeted to just 2.7 million coins, the lowest level since the March 2020 market crash. This widening gap between rising demand and supply contraction paints a picture of a possible market contraction. . Based on basic economic principles, such a scenario could cause the price of bitcoin to rise significantly in the near future.
DC
However, analysts warn that an illiquid market can be a double-edged sword. While it could drive a price increase, it can also cause wild price swings in either direction. In an illiquid market, large trades can have a huge impact on the price, making bitcoin vulnerable to extreme volatility. This underlines the importance of investors closely monitoring liquidity levels in the coming days.
btc weekly price action. Source: Coingecko
With less than 20 days left until the halving event, all eyes are on how this historic price catalyst will play out this time. Halving refers to a pre-programmed event in the bitcoin code that halves the block reward for miners, effectively slowing the rate at which new Bitcoins are created. Historically, this event has coincided with bullish periods for bitcoin, and many investors are anxiously waiting to see if this cycle will hold.
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twitter.com/hashtag/bitcoin?src=hash&ref_src=twsrc%5Etfw” rel=”nofollow noopener” target=”_blank”>#bitcoin
btc consolidates near new ATH. In the previous cycle, we saw the price move sideways for 150 days after the halving before starting to rise again.
It wouldn't be unusual to see something similar happen near the halving.
Any drop before or after the halving… pic.twitter.com/rsNMMB9Qwi
– Magazines (@thescalpingpro) twitter.com/thescalpingpro/status/1773689566546805216?ref_src=twsrc%5Etfw” rel=”nofollow noopener” target=”_blank”>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 could 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 about 150 days before launching into a historic bull run. Mags sees any short-term dip as an opportunity for investors to accumulate bitcoin ahead of a potential parabolic rise.
RR
The next few weeks will be crucial for bitcoin as it navigates the interplay of rising demand, limited supply, and the impending halving event. While there is a possibility of a liquidity crisis, the historical bullish sentiment surrounding the halving suggests a possible breakout for bitcoin. Investors are advised to exercise caution and closely monitor market conditions, monitoring both price movements and liquidity levels.
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