Recent Market Dynamics of bitcoin: Shifting Supply and Demand
The bitcoin market is currently undergoing a significant shift, with substantial inflows into bitcoin Spot Exchange-Traded Funds (ETFs) totaling over $7.4 billion in the past 50 days. This trend is having a direct impact on the availability of bitcoin on Over-the-Counter (OTC) desks, according to blockchain data indicating a rapid decline in OTC bitcoin supply since December.
The OTC bitcoin Supply Crunch
bitcoin ETFs rely on market makers purchasing bitcoin OTC from large holders to mitigate market slippage. However, this strategy results in a temporary supply shortage on OTC desks when ETF demand surpasses the available bitcoin. In response, market makers must source bitcoin from public exchanges. This process has contributed to recent price increases, with instances where only 40 btc were available for sale on OTC desks at any price point.
Caitlin Long, CEO of Custodia Bank, recently highlighted this issue during a visit to New York City, stating that bitcoin was scarce for sale on major OTC desks. This scarcity is considered a significant factor behind bitcoin’s price surge to over $62,000 per coin following a notable rally in February.
The Accuracy of OTC bitcoin Supply Tracking
While the apparent supply constraints on OTC desks are a topic of discussion, some analysts question the accuracy of on-chain data tracking OTC bitcoin supply. Will Clemente, co-founder of Reflexivity Research, believes that claims of OTC desks running out of bitcoin are exaggerated and complex to monitor accurately due to the nature of these transactions.
Despite these concerns, the recent surge in bitcoin’s price is undeniably linked to significant inflows into bitcoin ETFs. Between February 26 and 28, daily inflows exceeded $500 million, coinciding with bitcoin’s price jump from $52,000 to $64,000. Although the market has stabilized and ETF inflows have reduced, the connection between bitcoin ETF activity and market prices remains a subject of intrigue within the cryptocurrency community.
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