Not Your Keys, Not your Coins: Increase in Bitcoin Illiquid Supply

The Bitcoin illiquid supply increased by over 500k in the first quarter of 2022 due to increased liquidation events. 

The crypto markets have experienced a continuous series of downwards price movements since the beginning of the year 2022.

This may be especially due to rising levels of regulatory laws from different countries, SEC regulations, post-pandemic recessions, and a host of other macroeconomic reasons. 

This has also led to an increase in the bitcoin illiquid supply, which measures the amount of bitcoin moved from cryptocurrency exchanges to cold wallets with less trading activity. 

Bitcoin, being the largest cryptocurrency by market cap, is by far the most popular and most widely adopted cryptocurrency.

The price decline in bitcoin over the past few months has had significant effects on the price movements of all other altcoins, leading to a massive decline in the total market cap of the cryptocurrency market. 

As of November 2021, the total cryptocurrency market cap had nearly attained a peak of about $3 trillion, which caught the attention of the entire world to the growing cryptocurrency markets. 

However, shortly after the declines began and continued for the first quarter of 2022, especially in June, the cryptocurrency market experienced some heavy flows of liquidations from some of the key players in the cryptocurrency industry. 

Some of these noted key players include the liquidation of the crypto lending platform, Celsius, and the fall of one of the largest defi platforms, Terra Luna. 

This steady trend of liquidations of the key players and steady decline also resulted in more cryptocurrency users paying attention to bitcoin storage education. 

In a recent report by Cryptoslate, it was discovered that there has been an increase in the number of bitcoins moved from exchange wallets into cold or hard wallets for better protection of assets.

It was reported that the total amount of bitcoin currently held in cold or hard wallets now amounts to about 14.8 million bitcoins.

This covers a huge percentage of the total bitcoin supply, being that the total circulating supply of bitcoin is currently at 19 million out of the 21 million bitcoin that can ever be mined. 

The bitcoin illiquid supply is currently at 76% of the total bitcoin circulating supply as more investors are taking caution due to recent events surrounding liquidations of said exchanges, bringing to the realization of the importance of self custody (not your keys, not your coins). 

The graph below from glassnode indicates a steady uptrend in the Bitcoin illiquid supply since the first quarter of 2022. 

This increased bitcoin illiquid supply could have adverse effects on the price volatility of the coin in the near to mid-term. However, no one knows for sure yet how the market will react to these new changes. 

Also read about the blockchain sectors worst hit by the Terra Luna