Bitcoin Enters New Cycle With Shrinking Liquidity, Volatility Likely to Return — Sygnum Bank

Bitcoin’s Safe-Haven Status Strengthened by Supply Shortage and Market Volatility, Sygnum Bank Reports

Bitcoin’s position as a go-to safe haven is gaining new traction amid ongoing instability in U.S. Treasuries and a weakening dollar, according to insights from Sygnum Bank’s latest market outlook.

The report underscores a significant contraction in Bitcoin’s liquid supply — roughly a 30% decrease over the past 18 months — which, combined with sustained and growing demand, is setting the stage for potential price volatility and upward momentum. Analysts note that “Bitcoin’s dwindling liquid supply, alongside expanding demand, creates fertile ground for price shocks.”

Demand drivers include escalating inflows into Bitcoin ETFs and a growing number of governments exploring Bitcoin as a reserve asset. This convergence is fueling speculation around a “demand shock” scenario where an influx of buyers outpaces the available supply of coins.

More than one million BTC have been withdrawn from exchanges since late 2023, primarily by ETFs and corporate treasury investors holding for the long term. This has tightened liquidity, posing challenges for traders needing coins to cover shorts or execute timely exits.

On the macroeconomic front, falling U.S. Treasury prices and mounting federal debt are redirecting investor capital back toward traditional safe havens such as gold — and increasingly, Bitcoin. This trend bolsters Bitcoin’s reputation as a hedge against economic uncertainty.

Geopolitical developments also support this narrative. Three U.S. states have passed Bitcoin reserve laws, with New Hampshire already signing one and Texas expected to follow. Abroad, Pakistan and influential U.K. politicians are considering official Bitcoin reserves, signaling potential institutional adoption that could add significant market demand.

Sygnum concludes that the crypto cycle remains strong, with constrained supply and rising demand setting the stage for continued volatility and potential price appreciation.