Institutions Are Sucking Bitcoin’s Supply; Adding Fuel to the Fire for the 2021 Bull Run


Bitcoin price is having a bit of a moment as it continues to hit $50,000 only to drop back under $48,000. Currently, BTC/USD is trading around $49k with $10.32 billion in ‘real’ volume.

The latest uptick in price is the result of the continuous buying from Coinbase whales as Charles Edwards of Capriole Investments noted,

“15,000 Bitcoin being sucked out of Coinbase per week. Yes, that's more than $1/2B a week. Yes, more institutions are buying.”

More and more institutions continue to embrace Bitcoin as they look for new ways to get exposure to cryptocurrencies.

Just last week, the world’s largest custodian and America’s oldest bank with over $2 trillion in assets under management BNY Mellon became the latest institutions to announce support for digital currencies.

Trusts are also emerging as popular options for institutional investors to gain access to cryptos as Bitwise, BlockFi, and Osprey Bitcoin Trust enter the market. Data provider Crypto Metrics notes,

“As trusts grow more popular and a larger and larger percentage of supply will be locked up and held indefinitely. Amid an already hot market, this is adding more fuel to the fire for crypto’s 2021 bull run.”

Large Supply Sinks

Grayscale, the largest digital asset manager meanwhile, still continues to dominate with $31 billion AUM in Bitcoin and $5.6 billion AUM in its Ether trust.

Grayscale allows investors to get exposure to crypto through a traditional investment vehicle by buying publicly quoted shares. These trusts are eligible to tax benefitted accounts like IRAs and high demand for them from institutional investors leads to high premiums on them.

Institutional investors take advantage of the GBTC premium by simultaneously depositing BTC into the trust while shorting on CME, allowing them to remain market neutral while pocketing the premium.

Grayscale trusts that provide a familiar structure for accounting and taxation, however, have no way to redeem the underlying crypto yet, which means any BTC, ETH or other crypto deposited into the trusts stays there indefinitely. Crypto Metrics notes,

“The lack of redemption options plus high institutional demand has created an interesting side effect: crypto trusts are becoming large supply sinks that lock up crypto assets and effectively take them out of circulation, reducing the overall liquid supply.”

With more than 3 million BTC already lost and only 22% of the supply liquid, Grayscale’s continuous record purchases mean more and more Bitcoin and crypto continue to get removed from the circulating supply.

Only about 42% of total Bitcoin supply moved on-chain within the last year, which though increasing since October 2020 is still near all-time lows.

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