Bitcoin liquidity crisis

[Theoboy]

We all know the year 2020 has been a great year for Bitcoin. Bitcoin reach it's ATH this year and still pumping. But we forgot the aspect of liquidity in Bitcoin and how it will affect it.
What is liquidity
Liquidity refers to the ease with which an asset or security can be converted into ready cash without affecting it's market price.

Source: https://www.investopedia.com/terms/l/liquidity.asp

And Bitcoin is becoming more difficult to buy, according to analysts at Glassnode. The amount of BTC received and spent among entities is decreasing, which means the liquidity is declining.

Source: https://cointelegraph.com/news/bitcoin-liquidity-crisis-btc-is-becoming-harder-to-buy-on-exchanges-data-shows

And this is caused due to the increase in the price of BTC which most people can't afford and that will lead to the depleting of the buyers

And this means the mentality of BTC will be for the whales

[webtricks]

...
And this is caused due to the increase in the price of BTC which most people can't afford and that will lead to the depleting of the buyers

And this means the mentality of BTC will be for the whales

Liquidity is not depleting due to high price or reducing number of buyers. It is becoming difficult to buy because the volume of BTC available on market is reducing with the increasing price. Most of the current traders are very positive about the future price so they are holding the supply which is making BTC scarce on ready market. On top of that, big institutions are staking high number of BTC making the market supply even lower.

However, the use of term 'Liquidity Crisis' in the article is misleading. Liquidity like mentioned in OP is the ease with which an asset can be converted in cash. Bitcoin infact has become much more liquid these days than earlier. More and more buyers are interested in owning bitcoin and demand is increasing, hence more buy orders and higher liquidity.

[BrewMaster]

that is just another cointelegraph nonsense. there is no liquidity problem on exchange let alone be as dramatic as being a "crisis". in fact as the price grows the liquidity on exchanges increases by a lot and it becomes a lot easier to buy bitcoin as the order books become tightly packed with orders.

there are liquidity problems if for example you couldn't buy $10000 worth of bitcoin without causing the price to go up 10% which is obviously not the case. for example it currently takes near $6 million to buy the bitcoins enough to bring the price from $28528 to $29000 (less than $500 or 1.7% rise). and that's not even taking the shadow orders into account.
and that's just one small exchange (bitstamp) not all the bitcoin exchanges.

[Salamstar]

At a time when the current year was characterized by troubled times for the majority of investment assets with the sharp fluctuations in prices, up and down, it was completely different for Bitcoin, which witnessed one of its best years with reaching record levels not known before. In addition, many well-known companies have switched their liquid stocks to cryptocurrencies in search of better returns.
And I think 2021 will be an extraordinary year in Bitcoin's history, with expectations to attract more attention. Thus, Bitcoin is transforming from a marginal investment tool into a major asset that is widely used, and if this happens, Bitcoin will attract a lot of liquidity.

[paxmao]

And Bitcoin is becoming more difficult to buy, according to analysts at Glassnode. The amount of BTC received and spent among entities is decreasing, which means the liquidity is declining.

At last a newby that actually says newby things

[DarkDays]

...
And this is caused due to the increase in the price of BTC which most people can't afford and that will lead to the depleting of the buyers

And this means the mentality of BTC will be for the whales

Liquidity is not depleting due to high price or reducing number of buyers. It is becoming difficult to buy because the volume of BTC available on market is reducing with the increasing price. Most of the current traders are very positive about the future price so they are holding the supply which is making BTC scarce on ready market.

Exactly, what is being described above is simple economics. BTC liquidity is there is just that people are holding their Bitcoin for good reason. BTC has been pumping and everybody wants to get on it. At the moment nobody is thinking to of selling because they can see what BTC can do.

[The Cryptovator]

Liquidity crisis? I don't think so. Its circulation crisis. Based on your below quote, the current market should consider a liquidity crisis.

Liquidity refers to the ease with which an asset or security can be converted into ready cash without affecting it's market price.

So, aren't you able to convert your BTC into real cash or other assets without affecting the current market price? It's true that there isn't huge sell pressure, but it doesn't mean you are unable to sell. It means you can easily sell your coin if you want since there is a huge demand to buy it.

[DooMAD]

I started writing a reply on another topic about this earlier today, but by the time I hit "Post" it was gone.  I'm guessing it got nuked because they didn't link a source. 

Lots of sites seem to be reporting it's a "crisis", but it's difficult to see how strong demand can somehow be interpreted as a bad thing.  It'll be interesting to see what impact it'll have now that Grayscale have temporarily suspended issuance of new placements.  Maybe things will calm down a little.

[Crptomagma]

There is always need to look at probability theory but I don’t think liquidity is due to the depletion of high demand or low demand from buyers but other markets and political factors can result to he liquidity crisis as many Authority and countries are fighting against bitcoin and trying to make the technology decentralized.

[hd49728]

And Bitcoin is becoming more difficult to buy, according to analysts at Glassnode. The amount of BTC received and spent among entities is decreasing, which means the liquidity is declining.

No difficulty to buy bitcoin.

There are many bitcoins are traded on exchanges. In last 24 hours, on Binance there are 57592 BTC changed hands. You can buy any amount of bitcoin you want (don't tell me you buy more than 60k bitcoin in a single day).

I know more institutes are buying bitcoin and more entities move their bitcoin from exchanges to their cold wallets. Nevertheless, to say people are facing difficulty to buy bitcoin, it is not true.

[ChrisPop]

You're missing quite a few facts here. Bitcoin is divisible up to 8 decimals so it is safe to say that the average joe will always be able to buy at least a fraction of a Bitcoin.
Also please don't confuse liquidity with supply and demand. It's not exactly the same thing. Even if the majority of Bitcoin would be hodled in cold storage there could still be enough buying power on the market. In order to have a buy order on the market you don't need to own Bitcoin. Now if the supply is low and the demand is high the price will move up, that's a law of the markets.

As institutions enter the game the liquidity shouldn't be a problem for retail investors. Only big-pockets institutions who need to build massive positions to see a profit might have to work a little bit on generating liquidity. But as price gets higher I expect bigger investment funds getting into the game.

[Conley]

No cryptocurrency has ever had to face life amidst an economic recession. For several years, bitcoin has been stylised as a 'safe harbor' asset, a 'digital gold' that was uncorrelated with the to-and-fro of stock markets.

[tinopener]

There is indeed a bit of a liquidity crisis... when you view it as being one of the reasons the SEC won't approve a bitcoin ETF.

[freedomgo]

You're missing quite a few facts here. Bitcoin is divisible up to 8 decimals so it is safe to say that the average joe will always be able to buy at least a fraction of a Bitcoin.

This is absolutely right, people are thinking of the who 1 bitcoin but in reality we can buy 1 sat if the value will significantly increase in the future, hence there is no problem with liquidity as exchanges are also increasing in numbers to cater people who like to trade their bitcoin/s anytime.

[hd49728]

And Bitcoin is becoming more difficult to buy, according to analysts at Glassnode. The amount of BTC received and spent among entities is decreasing, which means the liquidity is declining.

Source: https://cointelegraph.com/news/bitcoin-liquidity-crisis-btc-is-becoming-harder-to-buy-on-exchanges-data-shows

And this is caused due to the increase in the price of BTC which most people can't afford and that will lead to the depleting of the buyers

It is not harder to buy bitcoin and it is easier to buy bitcoin if you know bitcoin has many increments, units that you can buy any amount you want and afford to pay. It is definitely true that you need to buy with the amount is bigger than minimum withdrawal amount on exchange and should be much bigger than withdrawal fee.

The title of the article on cointelegraph is misleading and I am not surprised with the way that website spreads fuds and creates hype. "harder to buy bitcoin", really? There are many bitcoin are traded on exchanges every day and when you have money, you can buy it.

The hardest thing is accept the price of bitcoin, beware of risk and opportunities, then make your first bitcoin investment. That's it, the hardest thing.

[yazher]

The price might get high but the liquidity goes on no matter what happens because the increase of the price doesn't just mean that everyone is holding it some people are actually using it as their means of payment. Some other sites are accepting it and most of the gambling sites still use BTC as their tokens. so, there is no reason for the liquidity to fall short and besides, more of those known companies are trying to get their hand on BTC to make their company flourished even more. Liquidity will not be subsided at any cause you just need to look at it the other way around.

[Fundamentals Of]

This is normal because Bitcoin is getting precious by the day. The supply is very limited and because the demand is rising fast it is inevitable that there will be a smaller amount available for buyers. But no one is required to buy large amounts or full Bitcoins. People may buy Satoshis if they cannot afford a full Bitcoin.

And this means the mentality of BTC will be for the whales

This will happen in the future if people are easily contented. If people will sell during temporary rallies or even when they're in panic during downtrends, then there will come a time when their Bitcoins will be drained or they will be forced to buy back at a higher price. The whales are buying a lot whether there is a dip or not.

[hd49728]

The price might get high but the liquidity goes on no matter what happens because the increase of the price doesn't just mean that everyone is holding it some people are actually using it as their means of payment. Some other sites are accepting it and most of the gambling sites still use BTC as their tokens. so, there is no reason for the liquidity to fall short and besides, more of those known companies are trying to get their hand on BTC to make their company flourished even more. Liquidity will not be subsided at any cause you just need to look at it the other way around.

Less available bitcoins on exchanges do not equal to less bitcoins available to be sold out in one period of time. Whales, institutes, small investors only move their bitcoin from exchanges to their own wallets for their safety. The movements are preparations for future sellings. They will sell their bitcoins somedays at the price they are planning to take profits.

Another flaw of this liquidity crisis theory is people can still have enough available bitcoins in market, on exchanges to buy and sell, to change hands every day. I am thankful to the guys who made the theory on media that help bitcoin price to begin its parabola and made it looks more scarce in supply.

The supply is very limited and because the demand is rising fast it is inevitable that there will be a smaller amount available for buyers. But no one is required to buy large amounts or full Bitcoins. People may buy Satoshis if they cannot afford a full Bitcoin.

Liquidity is different than supply and you are correct that people can buy any increment of bitcoin from their fiat available in pocket.