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As Liquidation Fades, HODLing Bitcoin Hurts Case for Buying, Says Morgan Stanley

February 10, 2021 at 20:26 by Ibrahim Anifowoshe

The recent bull market appears to be driving Bitcoin liquidity in the downward momentum. Most of the bull market is concentrated in a relatively small number of investors who are unwilling to sell. According to a new research by Morgan Stanley, the lack of liquidity may potentially hurt the pioneer cryptocurrency use for transactions.

The number of addresses with Bitcoin worth more than $1 million are on the rise. The Investment bank noted that over 60% of all coins issued are owned by wallets with over 100 Bitcoins. Wallets with between 1,000 and 10,000 coins hold 30% of coins issued.

In the report, Morgan Stanley said this may make Bitcoin as a means of exchange “harder to defend.” The report suggests that if BTC liquidity continues to fade, the use of Bitcoin in the trading of goods and services becomes harder.

This might affect adoption of Bitcoin by more people and businesses. The evolution of big products that enable a user-friendly experience for spending crypto assets could help change this.

The report mentions PayPal’s entry into the Bitcoin market in October 2020 as an example of this evolution. A 325 million potential users on the PayPal platform gives it an edge over other platforms that may enter the market. Companies are expected to create products and services that can facilitate user-friendly experience able to use crypto assets for transactions.

Although, in a blog post, Morgan Stanley’s head of emerging markets and chief global strategist, Ruchir Sharma, admits that Bitcoin has come to stay as a serious asset class:

We see fundamental reasons to believe that — regardless of where the price of Bitcoin goes next — cryptocurrencies are here to stay as a serious asset class. One is growing distrust in fiat currencies, thanks to massive money printing by central banks. Another is generational: younger people hear the “crypto” in cryptocurrency as new and improved, an exciting digital advance over metal coins. The worst knock on cryptocurrency as a store of value is its volatility, but unflinching demand from millennials has helped lower the volatility of Bitcoin, even during the pandemic.

Ruchir shares the believe that most Bitcoin acquired are held for investment, rather than payment for transactions. However, innovations by platforms like PayPal may change this outlook and convert the king coin to a crypto asset used for transactions.

If you have any questions and comments on Bitcoin today, use the form below to reply.

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