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Why Bitcoin Is Experiencing A Liquidity Crunch Going Into 2021?



If you want to get your hands on some Bitcoins and see them explode beyond the predicted $100,000 or $300,000 mark by the end of 2021, you are not alone.

The phenomenal increase in Bitcoin prices has attracted the attention of everyone. From billion-dollar investment firms to your local mom and pop shops, all want some part of Bitcoins. If you know a bit about Bitcoins, you will know that the real charm of it as an asset is because of its limited availability.

There are in total, 21 Million Bitcoins. Of the same, up until December 2020, nearly 18 Million have already been mined and owned. In this article, we discuss a problem that many exchanges and trading platforms are experiencing- a shortage of Bitcoins on the open market!

What is Contributing to the Liquidity Crunch of Bitcoins in 2021?

In the introductory section, we mentioned how the finite nature of Bitcoin means that they run on the classic demand-supply model. The confidence shown by investors means that this asset base is becoming expensive.

However, in addition to the above, there are other reasons for the liquidity crunch in Bitcoins-

  1. The Future of Money in the World-

Bitcoin has a promise of creating an egalitarian financial system, which would allow the entire population to be able to ‘own’ their money in real terms. It seeks to pull away from the control of the same from the hands of governments and policymakers and make it truly independent.

  1. No Middlemen or Commissions-

More than a trillion dollars were paid in commission fees to banks, payment gateways, and financial companies by individuals and businesses in 2020. With Bitcoin, this number would reduce to zero. Meaning that an extra trillion dollars would be pumped into the economy.

  1. Losing Value and Interest in Fiat Currencies-

The oil crash brought the dollar to its knees. With no stable physical backing and rising inflation, fiat currencies have been shown their real worth. Financial mismanagement and poor economic handling mean that people no longer have faith in traditional monetary systems.

  1. The Rise of a Digital World-

Work, entertainment, health, food, transportation, etc. are all being driven by digital adoption. Money too has seen an increase in digital models and cryptocurrencies like Bitcoin are going to be the natural evolution. As an investor, you should understand the ecosystem and how it works.

  1. Incompetent World Leaders-

Expertise leading to the creation of strong world economies has been replaced by inability and incompetence. Failure to kickstart and strengthen economies means that the common individual is far too dependent for his life on some representative who is going to fail them.

How Changes in Bitcoin Investing Styles is adding to the Liquidity Crunch?

‘HODLing’ is a term every investor needs to be familiar with in the Bitcoin investing ecosystem. The term is a misspelled word for holding on to the Bitcoins and allowing them to rise in prices. The sudden gain in the number of institutions and institutional investors has meant that people are not willing to sell Bitcoins for immediate gains anymore.

Earlier, retail investors would make a small profit and then sell-off their investments for fears that it will crash. The recent maturity in investing patterns and styles means that fluctuations are on the decline and a steady rise is expected.

This again adds to the liquidity crunch as there aren’t just enough Bitcoins available with exchanges, trading platforms like People are starting to invest in Bitcoins and other cryptocurrencies in the same way they do with real estate, invest, and forget!

The Final Word

The biggest Crypto Exchanges state that there just aren’t enough Bitcoins for everyone. The non-availability of mining rigs to mine Bitcoins also means that miners are being unable to produce enough. In the final analysis, it can safely be said that increasing interest in possessing and holding onto Bitcoins is going to add to the rarity and liquidity crunches.

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