According to on-chain analytics firm Glassnode, Bitcoin is seeing a decline in liquidity. Glassnode points out that the Bitcoin Highly Liquid Supply indicator is seeing a stark decline and is currently residing near a cycle low of 2.94 million BTC.
This represents a 620,000 BTC decrease since January 2022. In drawing inferences from the indicator readings, Glassnode analysts say this suggests a significant contraction in the actively tradeable supply, resulting in both a decline in liquidity as well as a constrained supply side.
The #Bitcoin Highly Liquid Supply has recorded a stark decline across our cycle, currently residing near a cycle low of 2.94M BTC, a -620K BTC decrease since Jan 2022.— glassnode (@glassnode) June 19, 2023
This suggests a significant contraction in the actively tradeable supply, resulting in both a decline in… pic.twitter.com/H9PJV3fWC8
Bitcoin posted a rebound earlier this year, making it the best-performing asset in the first quarter. However, a growing U.S. regulatory crackdown recently tempered some investors' enthusiasm.
Earlier this month, the SEC launched charges against the two biggest crypto exchanges, Binance and Coinbase. The declines in liquidity might be due to crypto trading platforms losing access to dollar payment systems.
An instance is seen when BinanceUS announced the suspension of USD deposits after its banking partners paused fiat (USD) withdrawal channels.
The drop in liquidity might also point to a waning appetite for Bitcoin at its recent higher levels as crypto regulation returns to the spotlight.
Impact on price
The impact on price might be thus: there is little support for not only the downside but the upside as well. Also, the market might be subject to volatility swings until the needed injection of liquidity is achieved.
Bitcoin and the rest of the cryptocurrency market are putting up lackluster performance at the start of the week. At the time of writing, Bitcoin was marginally higher in the last 24 hours, at $26,526.
This week, investors will be paying close attention to Federal Reserve Chairman Jerome Powell's testimony before the House Financial Services Committee and the Senate Banking Committee to get a grasp of the next direction for the U.S. economy. CME projects the probability of the Fed raising interest rates by 25 basis points in its July 26 meeting to be 77%.