Yann Allemann and Jan Happel, co-founders of blockchain insights firm, have shared a chart revealing that the odds of a bitcoin “supply shock” are increasing as demand for the flagship cryptocurrency comes back.

The chart shows that the cryptocurrency’s liquid supply plunged last year until June 2021, before its price surged to a new all-time high by November of that year, near $69,000. Since then the cryptocurrency’s price has been dropping steadily to now trade close to the $39,000.

It shows, however, there has been a decrease in liquid supply, while the cryptocurrency’s illiquid supply has kept on growing since then.

The chart, according to the firm’s co-founders, suggests the odds of a supply shock are increasing once demand for the flagship cryptocurrency starts rolling back in. Bitcoin’s price has been dropping along with that of other risk assets over several reasons.

Inflation data from the U.S. has shown an increase in consumer price indexes to a 40-year high, while inflation in the Euro area jumped to 5%, which saw the Federal Reserve and other central banks adopt a more hawkish stance and prepare to raise interest rates.

The threat of Russia invading Ukraine has also been affecting the markets and leading investors to rotate to more defensive assets. The conflict escalated after Russia recognized the independence of two separatist regions and ordered troops to move into them for peacekeeping purposes.

Notably, demand for BTC may come later rather than sooner, as a recent report from Glassnode has shown that short-term bitcoin traders at a loss may drive a sell-off in the near future. The firm’s analysis has shown that underwater traders are under pressure to sell their assets, which could lead to a bear market.

As investor losses weigh on sentiment, the firm wrote in a report, the longer investors that are losing on their positions are more likely to realize their losses and sell the coins they are HODLing. Per Glassnode, a probable cause for the sell-off could be “the financial cost and psychological pain of holding an underwater investment.”

The firm added:

If the market fails to establish a sustainable uptrend, these users are statistically the most likely to become yet another a source of sell-side pressure, especially if price trades below their cost basis.

Short-term holders, according to Glassnode, make up a sizable portion of BTC holders and underwater investors alike. Its data suggests short-term holders have been at a loss since early December and account for 18% of BTC’s market capitalization.

In total, 4.7 million coins are being held at a loss, 54.5% of which are held by short-term holders, the report details.

Notably, Bitcoin’s supply shock may come as a result of institutional investment, according to Kevin O’Leary, a celebrity investor known as “Mr. Wonderful” on ABC TV series “Shark Tank.” As CryptoGlobe reported, the celebrity investor sees BTC hitting $300,000 once regulators in the U.S. “rule on cryptocurrencies.”

O’Leary said that the flagship cryptocurrency could see its price skyrocket once institutional investors are allowed to move into the market. Per his words, at some point “in the next two to three years,” regulators in the U.S. are “going to rule on cryptocurrencies” with the first cryptoassets being regulated being stablecoins and BTC.

Several companies, including MicroStrategy, Tesla, Block, Marathon Digital Holdings, and KPMG Canada have added the flagship cryptocurrency to their balance sheets, while a few investment funds have added BTC exposure through Grayscale’s Bitcoin Trust (GBTC).

The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.

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