Key Takeaways
- •Bitcoin demand has fallen below the daily mining supply for the first time in seven months.
- •Spot Bitcoin ETFs have experienced $1.67 billion in net outflows since October 11.
- •Bitcoin treasury firms trading below their Net Asset Values (NAVs) indicate eroding confidence, which could further pressure BTC prices.
Shifting Bitcoin Supply and Demand Dynamics
Institutional demand for Bitcoin (BTC) has decreased to a level below the daily amount mined, sparking concerns about BTC's long-term stability, according to an analyst.
While the amount of Bitcoin being mined daily has remained consistent, demand from institutional buyers has "dropped below the daily mined supply for the first time in seven months," as stated by Charles Edwards, head of Capriole Investments.
Edwards shared a chart illustrating key Bitcoin metrics that track three types of institutional activity: Bitcoin mined (represented in red), spot ETF and similar institutional buying (shown in light green), and BTC Digital Asset Treasury (DAT) corporate activity (indicated in orange). The total amount of Bitcoin purchased by institutional investors is depicted by the blue line.
The analysis indicates a gradual decline in demand from DATs and ETFs since mid-August. This combined demand fell below the daily mining supply on November 3. The last instance of this institutional demand trailing the daily amount of BTC mined occurred in March.
Initially, the inflows from spot Bitcoin ETFs helped to offset the reduced corporate buying pressure, thereby sustaining overall institutional demand.
However, demand through spot ETFs also began to contract sharply following the market crash on October 11. Since that date, these investment products have recorded $1.67 billion in net outflows.
On October 31, spot Bitcoin ETFs experienced a total daily net outflow of $191 million, with none of the twelve ETFs recording any inflows.
This trend suggests that institutional appetite for exposure to BTC through traditional market vehicles has weakened, following a period of aggressive buying earlier this year that contributed to propping up BTC prices.
Expressing his concerns, Edwards stated, "Won’t lie, this was the main metric keeping me bullish the last months while every other asset outperformed Bitcoin." He added, "Not good."
An Unsustainable Trend for BTC?
Meanwhile, BTC's rally has cooled, dropping toward $107,000 after reaching a record high of over $126,000 on October 6.
Looking at the broader market, it has been consolidating within a wide range above $105,000 since July, reflecting a balance between bullish optimism and profit-taking.
The DAT trend, which was pioneered by Strategy, is based on the conventional concept of borrowing fiat currency to acquire Bitcoin.
Edwards further noted that there are currently "188 treasury companies carrying heavy BTC bags with no business model."
The DAT trend, therefore, represents a bet on continued price appreciation leading to capital gains. The Market Value to Net Asset Value (mNAV) ratio is a metric used to evaluate the valuation of companies that hold Bitcoin as a treasury asset.
A higher mNAV can suggest that investors are assigning a premium to a company based on its future growth prospects, whereas a lower mNAV might indicate concerns regarding debt or other risks.
Data indicates that Bitcoin treasury firms have seen their NAVs collapse, erasing billions in paper wealth.
If this trend continues, it could diminish the premium these companies command. Declining institutional demand may signal reduced confidence, which in turn could increase selling pressure.
As previously reported, Bitcoin's price recovery is expected to remain limited until spot ETFs and institutions, led by Strategy, resume their large-scale acquisitions.