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Building on CryptoSlate's recent analysis of competing Bitcoin inflows and outflows between BlackRock and Grayscale, I extrapolated the data even further to see how long BlackRock could maintain its current average Bitcoin accumulation.
At a high level, BlackRock's entry via Bitcoin ETFs is an important moment for Bitcoin's reputation in the United States. Like other “Newborn Nine” ETFs, BlackRock's approval is likely to reduce liquid and highly liquid supplies as more investors gain access to Bitcoin as a long-term investment. Furthermore, it will increase investor confidence for those unfamiliar with blockchain and strengthen the credibility of Bitcoin as an asset class, thereby affecting its liquidity and volatility profiles.
Before we go any further, I want to add a very clear disclaimer here. The analysis below is a hypothetical look at possible accumulation levels for spot Bitcoin ETFs. I used BlackRock's early inflows as a benchmark. There is no guarantee that these levels will persist, and if they did, it would most likely cause the price of Bitcoin to increase. Demand for Bitcoin is unlikely to remain constant regardless of price, so it is unlikely to assume the same BTC inflows over an extended period of time.
That said, looking at the numbers from a purely theoretical perspective reveals some extremely noteworthy data points, which can then be used alongside other analyzes to identify if and when a supply crisis is looming on the horizon for Bitcoin.
The more these new ETFs continue to acquire Bitcoin at these high levels, the better for long term HODLers and laser eyes.
In my opinion, now more than ever, HODLing Bitcoin has a real purpose. The fewer Bitcoins available for purchase in ETFs, the closer we get to a MOASS (Mother Of All Supply Squeezes) where Bitcoin moons, not because shorts have to cover, but because institutions have to buy Bitcoin on the free market like the rest of the market. world.
Liquidity of Bitcoin and the immediate impact of BlackRock.
Since the launch of spot Bitcoin ETFs in the United States last week, BlackRock has acquired an average of 6,266 BTC per day for a cumulative total of 25,067 BTC at the time of going to press. The total acquired by the Newborn Nine in just four trading days is now at 70,000 BTC ($2.9 billion.) When we include grayscale, the total Bitcoin under management East 660,540 BTC ($27.6 billion.)
To understand the analysis, I will first describe the buckets used, as defined by the Glassnode data.
“Liquidity of an entity is defined as the ratio of cumulative outflows to cumulative inflows over the life of the entity. An entity is considered illiquid / liquid / very liquid if its liquidity L is respectively ≲ 0.25 / 0.25 ≲ L ≲ 0.75 / 0.75 ≲ L.”
More information on calculating L can be found on Glassnode Blog.
- Current offer: The total number of bitcoins mined and currently in circulation.
- Illiquid supply: Bitcoins held in wallets without significant movement, suggesting a long-term investment strategy.
- Liquid supply: Bitcoins actively traded or spent, indicating higher market activity.
- Very liquid supply: This category represents bitcoins that are not only traded but are readily available to trade on exchanges within a short period of time.
- Exchange offer: Bitcoins held in exchange wallets, ready to be traded or sold.
The chart below shows the different liquidity cohorts for Bitcoin over time. Illiquid supply is by far the most important sector. However, it is interesting to note that the highly liquid share is greater than the liquid share, which indicates a dichotomy between investors. Bitcoin holders are either hodlers or traders, and very few of them hesitate to hold or transact with Bitcoin.
Now that we understand the liquidity situation, let's look at how the different cohorts stack up. The official maximum supply of Bitcoin is 21,000,000 coins. The current circulating supply is 19,600,000. According to Glassnode, the total amount of lost parts is approximately 1,400,000; this includes, among others, Satoshi's pieces. There are other, higher estimates of lost coins; however, given that this figure has remained relatively constant since 2012, I believe it is the most reliable number.
Interestingly, this means that when we remove lost parts from the maximum offer, we end up with the same number as the current circulating supply. While this is purely a coincidence at this point in time, it gives an idea of how it will feel when all the coins have been mined, at least in terms of market liquidity. Of course, once all the coins are mined, the lack of block rewards for miners will add another aspect to the mix that I won't get into right now. I will say that I think the fees will be more than enough to continue to secure the network given the current direction Bitcoin is going.
Metric | Value |
---|---|
Maximum supply | 21,000,000 |
Current offer | 19,600,000 |
Adj. Maximum supply | 19,600,000 |
Adj. Current offer | 18,200,000 |
Illiquid supply | 15,402,422 |
Liquid supply | 1,306,262 |
Very liquid supply | 2,892,486 |
Exchange balance | 2,360,087 |
The current supply can also be adjusted to remove lost coins. The three main cohorts to analyze are liquidity levels, as explained below, and Bitcoin balance on crypto exchanges. Total amount of liquid and very liquid coins to just 4,198,748 BTC ($175 billion), which is approximately 21% of $815 billion Bitcoin market capitalization.
What if BlackRock continued to buy all Bitcoin?
Now let's get to the fun part you're all reading for. What if BlackRock’s inflows continued at the level observed when it started? While some have lamented the launch of spot Bitcoin ETFs as a failure, and the price of Bitcoin has even fallen to $0.0413 million from its recent high of nearly $49,000, I think they are will surely end up with “egg on their face”, as we say. UK. Here's why!
Currently, 900 new Bitcoins are mined daily, and this figure will drop to 450 BTC around April 18, 2024. Additionally, as I said before, BlackRock acquires approximately 6,266 BTC per day. If BlackRock attempted to purchase directly from miners, it would result in a net deficit of 5,266 BTC.
So he has to get Bitcoin elsewhere. Until now, Coinbase OTC desks have had enough liquidity to meet needs. However, this cannot last forever; there is no infinite liquidity. The table below shows what would happen if BlackRock purchased from each cohort with miner participation.
At the current rate, over the next 10 days, BlackRock would reach approximately 81,481 BTC with little to no significant impact on the cohorts. So, the launch was a failure?
I do not think so.
If we extend this until September 6, 2024 and BlackRock only buys from liquid supply, with miners adding to this cohort and reducing the impact, the entire cohort would be absorbed.
Let's go on.
To make it clear and clear, every table going forward will be subject to the following hypothetical scenario.
What if BlackRock bought exclusively from this cohort at the rate it used over the first four days and the newly mined Bitcoin was also included, reducing the impact of BlackRock's purchases?
By March 3, 2025, Bitcoins held on exchanges would be gone and BlackRock would have 2.6 million BTC.
The “highly liquid” cohort would be absorbed by June 6, 2025. This group is probably the most easily accessible to BlackRock for liquidity, and that's only 18 months away.
In just eight years, by 2032, BlackRock's Bitcoin holdings would be worth $686 billion by today's standards and consist of 16,404,391 BTC. This would require him to have found a way to buy all the Bitcoin from the “illiquid” supply and give it approximately 79% of all circulating Bitcoin under management.
Finally, in just 3,073 short days, on June 16, 2032, BlackRock would have purchased all of the Bitcoin in circulation and would have finally had to stop its purchase of 6,266 BTC per day. In the future, there would only be 113 BTC available each day from newly mined Bitcoin, of which there would be 327,538 BTC left to mine.
Of course, few of the above scenarios will occur. It is unlikely that BlackRock will be able to sustain these levels of inflow in terms of Bitcoin without the price of Bitcoin falling significantly or demand increasing with the price.
For example, 6,266 BTC is worth $262 million, or $0.04184 million per Bitcoin. At $0.2 million per Bitcoin, this amount reaches $1.25 billion per day. Conversely, at $0.01, that's only $62.6 million.
So unless Bitcoin stays around $0.04 million for the next eight years, BlackRock is able to convince investors to buy its ETF at the same rate, and it can find HODLers willing to sell, we don't We're not going to see BlackRock take custody of all Bitcoin.
However, we can now start to see what kind of impact constant inflows of Bitcoin ETFs can have on different parts of the supply. Personally, my Bitcoin is illiquid and remains so. I see the benefits of spot Bitcoin ETFs, and I also see the supply crunch coming in one form or another. Certainly not today, probably not this quarter, but after that…
CryptoSlate will continue to dig into the numbers and on-chain for you, so if you enjoyed this exploration of Bitcoin's supply, please let us know on our X account. @cryptoslate or contact me directly @akibablade. Thanks also to Samson Mow for the “M” rating for Bitcoin!
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