Bitcoin Liquidity Crunch Points to Fresh Volatility as New Cycle Builds: Sygnum Bank

Bitcoin’s BTC circulating supply is thinning out with an estimated 30% drop in liquid BTC over the last 18 months, a steep drain that could set the stage for potential upside volatility in the coming months, a Sygnum Bank’s market outlook said Tuesday.

“Bitcoin’s liquid supply is getting severely constrained while positive demand trends continue, creating the foundation for upside shocks in the price,” analysts wrote, adding the rise of ETF inflows, along with governments increasingly open to bitcoin reserves, is fueling speculation about a “demand shock” scenario, where too many buyers chase too few coins.

Over a million BTC has been withdrawn from exchanges since late 2023, Sygnum said, with ETFs and corporate treasuries driving the hoarding. That’s putting added pressure on traders who need liquidity to exit during spikes or to cover shorts.

Meanwhile, Bitcoin’s role as a safe haven is getting a fresh boost from turmoil in U.S. Treasurys and a weakening dollar.

Sygnum flagged that falling U.S. Treasury prices and ballooning federal debt are pushing investors back toward gold and bitcoin. The crypto’s resilience in the face of these fiscal headwinds suggests it’s becoming a go-to hedge.

The report also highlighted new demand catalysts emerging on the geopolitical front, such as three U.S. states have now passed Bitcoin reserve bills, with New Hampshire already signed one into law, while Texas appears next in line.

Overseas, Pakistan and even a U.K. party front-runner are weighing official BTC reserve allocations. These moves, while symbolic for now, could eventually add a major bid to the market if they materialize.

The bottom line is that the ongoing crypto cycle looks far from over.