Bitcoin

Analysts Say Bitcoin Faces "Sell-Side Crisis" as Buyers Overwhelm Sellers

The number of bitcoin on cryptocurrency exchanges has been rapidly declining, indicating a significant drop in selling pressure.

Bitcoin reserves of exchanges often indicate whether there is selling pressure as bitcoin holders typically deposit to exchanges to sell their holdings. When Bitcoin exchange reserves substantially drop over an extended period of time, it suggests there is a lower appetite to sell bitcoin at the current price.

Analysts Speak of a "Sell-Side Crisis"

A decline in sellers benefits Bitcoin more so than most stores of value and currencies due to its fixed supply.

Since Bitcoin has a fixed supply of 21 million and the rate at which miners mine new bitcoin is public knowledge, its price can be heavily affected when there are sellers in the market.

According to Light, a pseudonymous futures and options trader, Bitcoin is currently experiencing a sell-side crisis. The trader emphasized that while the production of bitcoin is limited and rigid, demand is increasing. That creates a shortage of bitcoin in the market, pushing the price of the dominant cryptocurrency upwards.

Bitcoin is experiencing the beginnings of a sell-side liquidity crisis. It has always been like oil on crack. Production is entirely inelastic, demand meanwhile, is reflexive.

The amount of bitcoin held on exchanges since late 2018. Source: light, Glassnode

Consequently, in the past three days, the Bitcoin price has increased by 8%, from $10,530 to $11,400. The recent rally is particularly important because of its technical implications.

$10,500 has been a critical support level for Bitcoin throughout September and October. A strong reaction from buyers at that level to push Bitcoin above $11,300 indicates a positive market sentiment.

The Sentiment Around Bitcoin Remains Optimistic

On October 8th, as the BTC Times reported, payments firm Square purchased $50 million worth of bitcoin.

According to researchers at Whalemap, there were over-the-counter (OTC) deals before the news was released. The researchers said:

I was looking forward to seeing if more OTC deals will come through, and they did. I am leaning more and more towards the idea that you can see these OTC deals happening on-chain before the news are released.

High-net-worth individual investors and whales often use the OTC market to accumulate bitcoin directly from large sellers. Higher OTC market activity is considered a positive factor for short- to medium-term price cycles.

The confluence of declining selling pressure from retail investors on exchanges and the rising accumulation of bitcoin by whales and high-net-worth individuals strengthens the argument that a sell-side crisis might be ongoing.

written by

Joseph Young is a financial analyst based in South Korea. He has covered Bitcoin and the crypto market since 2013. He regularly contributes to the BTC Times, Forbes, and Cointelegraph.