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Bitcoin Faces Liquidity Crunch from ETF Inflows

Bitcoin sell-side liquidity crisis by September, warns industry analyst Ki Young Ju, CEO of CryptoQuant
March 13, 2024

As Bitcoin continues to gain traction as an institutional investment, industry analyst Ki Young Ju warns of a looming liquidity crisis in spot Bitcoin ETFs. With close to $30 billion currently held in BTC ETFs and significant inflows continuing, Ki anticipates a sell-side liquidity crisis within six months, potentially altering the cryptocurrency market landscape.

In his recent analysis shared on X, Ki underscores the ongoing trend of Bitcoin ETFs attracting institutional interest, particularly in the United States. These ETFs have witnessed unprecedented success since their launch, signaling a paradigm shift in Bitcoin investment strategies.

The influx of institutional capital into spot Bitcoin ETFs presents a unique challenge, as the demand for Bitcoin may soon outstrip its available supply. This scenario, if realized, could trigger a scarcity of Bitcoin for sale, fundamentally reshaping market dynamics.

Highlighting the recent surge in Bitcoin holdings by ETFs, Ki emphasizes the significant accumulation of over 30,000 BTC in the previous week alone. Additionally, exchanges and miners collectively hold around 3 million BTC, with US entities accounting for a substantial portion.

Ki predicts that as long as spot Bitcoin ETF inflows persist, market bears will continue to face challenges in gaining control. The ongoing outflows from the Grayscale Bitcoin Trust (GBTC), despite reaching approximately $500 million daily, have not significantly impacted the trust's BTC holdings due to Bitcoin's price appreciation.

However, the potential sell-side liquidity crisis could usher in a new era of market dynamics, limiting the availability of sellers and potentially leading to a higher cyclical top for Bitcoin prices.

While the market awaits regulatory decisions on Bitcoin ETF options, including filings from various asset managers for leveraged ETFs, analysts anticipate an influx of hedge fund players into the crypto ecosystem. These developments could further amplify the impact of institutional inflows on Bitcoin's price trajectory.

In conclusion, Ki's insights shed light on the evolving landscape of Bitcoin investments and the potential implications of institutional inflows on market liquidity. As the cryptocurrency market continues to mature, the interplay between institutional adoption and market dynamics will shape the future trajectory of Bitcoin and other digital assets.

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