Bitcoin “Liquid Inventory Ratio” Hits All-Time Low, What That Means – TradingView News

On-chain data shows that Bitcoin’s “liquid inventory ratio” has fallen to an all-time low. Here's what this could mean for the asset.

Bitcoin’s sales liquidity is currently low relative to demand

In a post on The Liquid Inventory Ratio is an on-chain indicator that tells us how the asset's total liquidity supply on the sell side compares to its demand.

The asset's sell-side liquidity holdings are measured by four factors: total foreign exchange reserves, mining holdings, OTC desk holdings, and BTC seized by the US government.

Of these, the foreign exchange reserve (i.e. the total amount in the wallets of centralized exchanges) is the largest potential source of liquidity on the sell-side.

The graphic at the bottom right shows how the coin's sell-side liquidity has changed in recent years:

NewsBTC

From the chart, it can be seen that the sell-side liquidity of the cryptocurrency has been falling for some time now. This decline is mainly due to the depletion of foreign exchange reserves as investors continually push for self-custody and may prefer to hold on to their Bitcoins for longer periods of time.

The chart on the left shows the trend of aggregate demand for the asset. Demand is measured based on the 30-day balance changes of “accumulation addresses”.

The accumulation addresses are those that have only bought and not sold BTC in the past. Exchanges and mining companies are of course excluded from this cohort, as they instead count as sell-side liquidity, regardless of whether they meet the accumulation address requirement or not.

Apparently, the demand for Bitcoin has exploded recently as new players such as Exchange Traded Funds (ETFs) have entered the arena. All of these BTC potentially fall out of circulation and get locked into the wallets that are known for hosting one-way traffic.

Given these two developments in cash inventory and sell-side demand, it is not surprising that the Liquid Inventory Ratio, which measures the relationship between the two, has fallen sharply recently.

NewsBTC

After the indicator’s recent decline, its value has actually fallen to a new all-time low. This means that liquidity on the sell side has never been lower relative to the demand for Bitcoin.

Given this trend, it will be interesting to see how the BTC rally develops from here as supply to buy becomes increasingly scarce.

BTC price

Previously, Bitcoin had seen some decline, but the uptrend appears to have returned for the coin as its price has now recovered above $70,200.

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