Bitcoin (BTC-USD) has lagged behind traditional assets as August comes to a close, weighed down by decreasing liquidity and ongoing concerns that governments might liquidate their cryptocurrency holdings. The US, China, the UK, and Ukraine are potential sources of such sales, as are creditors of the collapsed Mt. Gox digital-asset exchange, according to a report by research firm Kaiko. This could contribute to a possible $33 billion overhang in Bitcoin supply.
Kaiko estimates that the US government holds approximately 203,220 Bitcoin, followed by China with 190,000, the UK with 61,200, and Ukraine with 46,350. Governments typically acquire Bitcoin through criminal investigations, while Ukraine is believed to have received donations to support its defence against Russia’s invasion. Additionally, Mt. Gox has around 46,170 Bitcoin left to distribute.
“Supply overhang has been a significant topic in crypto markets throughout the summer,” noted Kaiko analysts Adam Morgan McCarthy and Dessislava Aubert. They highlighted the potential for prominent holders to exert selling pressure in the coming months.
Waning Liquidity
This concern over potential sell-offs comes as Bitcoin’s liquidity has thinned, exacerbating price volatility in response to large trades. The cryptocurrency has declined by approximately 8% this month, contrasting with about a 2% gain in global stock and bond indices.
“Spot market volumes for Bitcoin remain subdued, contributing to recent erratic price movements,” wrote Sean Farrell, head of digital-asset strategy at Fundstrat Global Advisors LLC. He added that activity typically increases following Monday’s US Labour Day holiday.
Farrell also pointed out that the seven-day average of Bitcoin turnover — trading volume relative to the token’s market value — has decreased to around 2% from a peak near 5% during Bitcoin’s record rally in March.
Despite positive net inflows into US spot Bitcoin exchange-traded funds (ETFs) and growing expectations for a Federal Reserve policy easing in the near future, Bitcoin has faced challenges this August.
ETF Sector Challenges
The trading environment for Bitcoin ETFs in the US has also become more difficult, according to JPMorgan Chase & Co. strategists. This assessment is partly based on the Hui-Heubel ratio, a metric that provides insights into liquidity by measuring the number of trades required to move prices.