Bitcoin Is Now A Deflationary Asset, Says Cryptoquant CEO

Bitcoin is increasingly looking like a rare piece of art whose supply is dwindling while demand remains high. Companies like MicroStrategy are actively sucking bitcoins out of the market, effectively making the digital currency deflationary. CryptoQuant’s CEO has stated that large players like MicroStrategy are buying up Bitcoin faster than they are mining it. MicroStrategy alone owns 555.000 bitcoins, which is about 2,65% of the maximum supply of 21 million bitcoins.

The Invisible Hand That Makes Bitcoin Intangible

MicroStrategy is holding their bitcoins in cold storage with no plans to sell, which results in them being out of active market circulation. This simply means that there is a structural increase in the number of bitcoins being removed from the market than are being added through mining activity. With MicroStrategy’s holdings alone, the annual rate of decline of bitcoins in circulation is estimated to be over 2,2%, and this rate could be even higher if we include other large holders.

Previously, the market was a simple convergence of powerful whales, miners, and the fluctuating interest of individual investors. When small investors, the so-called ‘retail’, retreated and whales took their profits, it was a sign that a market top was near. It was almost like the music stopped in a game of musical chairs: whoever reacted last could suffer big losses.

Why the rules of the game have changed

Those days are over. ETF integration, large firms like MicroStrategy, and increased institutional interest have dramatically changed the Bitcoin landscape. These new players have deep pockets and absorb any significant sell-offs, leading to a much more stable market environment. This structural change has led to early predictions of an impending bear market being pulled back. The market is now too layered and complex to be measured by traditional yardsticks.

What remains is a market structure where Bitcoin supply decreases while demand remains high. This scenario points to a market where new buyers compete not only with each other, but also against institutional giants with no intention of selling. And as the CryptoQuant CEO stated, “Bitcoin is deflationary,” and this is before the next ‘halving’, where the reward for mining Bitcoin will halve again.

Frequently Asked Questions

What Makes Bitcoin Deflationary?

The accumulation of large lots that have no intention of selling reduces the actively available supply, making the currency deflationary.

Who are the big players buying Bitcoin?

MicroStrategy is one of the best-known examples, but other institutional investors and ETFs are also contributing to the decline in supply.

What are the implications of a declining Bitcoin supply?

This can lead to price stability or even price increases, as demand potentially outweighs reduced supply, which becomes especially interesting in times of economic uncertainty.