And this may just be the calm before the storm...
When supply runs dry and institutions are frantically buying, any pullback could become an excellent opportunity to get on board.
Bitcoin's early history was an 'abundant' era; even in 2010, some 'faucet' websites would distribute Bitcoin for free. Today, we are witnessing a historic shift: over 80% of Bitcoin supply has become illiquid.
Fidelity Digital Assets emphasizes in its latest report that the market has entered a 'super-scarce' era dominated by a 'dual engine'. On one hand, the programmatic halving mechanism reduces daily new issuance from 900 to 450; on the other hand, long-term holders have locked up over 80% of the circulating supply.
01 The Truth About Liquidity Exhaustion
The liquidity of the bitcoin market is shrinking at an astonishing rate. As of September 2025, over 15.8 million bitcoins (accounting for 80.5% of the total circulating supply) have been categorized as 'illiquid.' These bitcoins are firmly held by long-term holders and almost never enter the market circulation.
On-chain data analysis shows that a 'non-liquid entity' is defined as one whose historical sales of bitcoins are less than 25% of total purchases. This simple and effective definition accurately identifies the market's true believers.
The bitcoin reserves on exchanges have fallen to their lowest level since 2019. A large number of bitcoins are being transferred from exchanges to private wallets or cold storage, with the daily exchange flow dropping to 40,000, marking a ten-year low.
Even when prices hit new highs, investors are more willing to hold for the long term rather than trade frequently. This 'diamond hands' culture further reduces market liquidity.
02 How Institutional Investors Devour Remaining Liquidity
When liquidity is scarce, institutional investors have become 'powerful supply absorbers.' MicroStrategy holds nearly 640,000 bitcoins, referred to by analysts as 'a core driving force that changes the market supply landscape by itself.'
The approval of spot bitcoin ETFs is a game changer. These ETFs create an almost infinite capital entry point, continuously converting the liquidity of traditional financial markets into long-term holdings of spot bitcoin.
The total holdings of global corporate entities have exceeded 1.4 million BTC. Traditional financial giants like BlackRock have also entered the market, with BlackRock alone holding 735,000 bitcoins. These institutions typically adopt a long-term holding strategy, keeping their bitcoins in a 'quasi-dormant' state.
03 Market Effects Under Supply and Demand Imbalance
The actual number of bitcoins that can circulate may only be between 12 million and 17 million, far below the nominal 19 million mined total. This means that the actual scarcity of bitcoin is severely underestimated.
About 1.1 million bitcoins held by Satoshi Nakamoto have remained basically untouched for sixteen years, while the bitcoins permanently lost due to lost private keys are estimated to be between 2.87 million and 3.79 million, accounting for 17% to 23% of the mined total.
This supply tightening has encountered an unprecedented wave of demand. When the growing demand faces a continuously decreasing tradable supply, its positive impact on price is evident.
The market structure has fundamentally changed: the reduction in tradable quantity has led to a decrease in market depth, which may increase volatility but also stabilize prices due to the reduction of 'floating supply.'
04 Rethinking Investment Strategies
In the context where liquidity scarcity has become the new normal, investors need to reassess the value logic of bitcoin. Fidelity's report asserts: 'The halving in 2024 is not a simple repetition of past cycles; it is a structural re-evaluation, and the supply shock behind it is unprecedented in mechanism and nature.'
The market has completely transformed into a new era defined by 'scarcity.' When supply tightens and is met with institutional-level, long-cycle capital-driven new demand, bitcoin is transitioning from a speculative asset to a value storage tool.
Institutions like Standard Chartered and Bernstein predict that bitcoin prices could reach $150,000 to $200,000 in 2026. Galaxy even dares to predict $250,000 in 2026; this prediction is not a fantasy in the context of liquidity exhaustion.
Smart investors should pay attention to on-chain indicators such as exchange reserves and long-term holder behavior, rather than just price fluctuations. These data more accurately reflect market conditions.
The distribution of bitcoin holdings shows a highly concentrated characteristic. The top 10,000 holders account for only 0.014% of the total but hold 4.8 million bitcoins, accounting for 26% of total wealth. Most of these 'whales,' like Satoshi Nakamoto, adopt a long-term holding strategy, and their bitcoins may never enter the circulating market.
As institutions like BlackRock's ETFs absorb funds equivalent to 30,000 bitcoins each week, while the daily new supply is only 450, the circulating supply may only meet 12 months of spot demand. The mathematical calculation of supply and demand becomes very simple and brutal. The next time you hesitate whether to buy, ask yourself: are you willing to enter at today's price, or will you regret it when the last 'crumb' is picked up by institutions?
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