How Does Bitcoin's Illiquid Supply Work?

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The value of cryptocurrencies has fluctuated since their inception; however, the general trend has been that of a rising interest in these new digital assets, followed by the diversification of their use cases and the gradual increase in regulations. Bitcoin first experienced a significant rise in value in 2011, and it was not long before new cryptocurrencies started to appear. There are now close to 10,000 cryptocurrencies, yet not all are considered a worthy investment. Only a few possess the combination of long-term stability and high adoption rates, and these are the best cryptos to buy now. Bitcoin is among them, and its desirability to investors is evident in its large illiquid supply. This article explains what Bitcoin's illiquid supply is, why it has formed, and what the consequences are of its development.

What Is the Illiquid Supply of Bitcoin?

The term can be somewhat confusing, as in finance, liquidity is a measure of how efficiently an asset can be sold at a price representing its intrinsic value. Real estate is an example of a highly illiquid asset, while cash is the most liquid, as it can be quickly exchanged for any other asset. The illiquid supply of Bitcoin, on the other hand, refers to a portion of the total amount of the cryptocurrency possessed by entities that are unlikely to sell it. There is no one strict definition. For example, Glassnode, a blockchain analytics company, defines the liquidity of an entity possessing Bitcoin as the ratio of its cumulative outflow and cumulative inflow. It further defines an illiquid entity as one with a liquidity below 0.25. Fidelity Digital Assets recently conducted an analysis in which it defined the illiquid supply of Bitcoin as Bitcoin that either had not moved in 7 years or belonged to public companies that held at least 1,000 bitcoins. While it is not possible to predict with certainty that these coins will not be sold in the near future, the aforementioned approaches are methods of estimating this value.

How Large Is the Illiquid Supply of Bitcoin, and How Has It Changed Over the Years?

There are currently over 19 million Bitcoins in total, and the amount is nearing its limit of 21 million. Out of these, around 6 million are illiquid (various estimates can differ significantly), and this value has been steadily increasing over the years. Its liquid counterpart remained almost constant at around 15 million between 2016 and 2024, when it started decreasing and is now at around 13 million.

As has been mentioned earlier, in the analysis performed by Fidelity Digital Assets, the illiquid supply of Bitcoin is divided into two cohorts, which are Bitcoins that have been held continuously for 7 years and Bitcoins owned by public companies in possession of at least 1,000 Bitcoins. According to the analysis, the first cohort rose during every quarter since 2016, while the second only experienced a decrease once in 2022. The quarterly rise of the first cohort has been fluctuating over the years, without an apparent pattern. The second, on the other hand, has grown significantly in 2024, representing the growing adoption of Bitcoin by public company treasuries. This phenomenon might also explain the fall of Bitcoin's liquid supply in 2024.

As of June 2025, out of all Bitcoin held by public companies, 97% was in possession of companies that held more than 1,000 Bitcoin, and its value was $628 billion.

At the end of October 2025, Glassnode reported the selling of 62,000 Bitcoins by long-term holders since mid-October, which was a high amount but not enough to significantly impact the big picture.

What Has Caused the Growth of Bitcoin's Illiquid Supply?

This is the question that naturally arises after looking at the data, and it most likely comes down to three factors, which are scarcity, confidence of holders, and Bitcoin treasury companies.

Scarcity

Bitcoin is inherently scarce. Its scarcity is a result of two features that have been programmed into it during its creation.

The first is its predetermined maximum amount. Bitcoin has been designed so that its total amount cannot exceed 21 million. The consequence is that if this value is reached, and demand keeps rising, it can only be followed by an increase in price, as the total supply is capped, making it highly appealing to long-term investors.

The second feature facilitating Bitcoin’s scarcity is its halving. After every 210,000 blocks that are added to the blockchain, the reward for mining is halved. Halvings occur approximately every 4 years, and their timeline is presented below, along with the changed rewards at those times:

The next halving is expected to happen mid-2028. While the 21 million limit caps Bitcoin’s total supply in the long run, halving decreases the growth of supply, which also contributes to the rise in its price.

The past halvings resulted in high temporary increases in Bitcoin’s price, followed by modest drops, with an overall upward trend over the years. The 2012, 2016, and 2020 halvings preceded an 80-fold, 4-fold, and 7-fold price increase.

These scarcity mechanisms have been built into Bitcoin to prevent inflation, as Bitcoin is a decentralised currency. While central banks have various tools at their disposal to control inflation, a decentralised currency cannot rely on a central authority and has to be designed with an inherent mechanism of supply control.

Confidence of Holders

People have always needed assets that serve as a hedge against inflation, as fiat currencies are bound to steadily decline in value. For a long time, gold has served the purpose of a stable asset that is used for the long-term storage of wealth. Bitcoin’s value experienced dips over the years but always rebounded, proving its long-term stability. Consequently, it is increasingly being used for preserving wealth over time.

In addition to the history of Bitcoin’s price, it possesses a range of qualities which make it a highly practical currency, ensuring that its value’s upward trend is not just an economic bubble. Somewhat ironically, the more people use Bitcoin for various purposes (i.e. spending coins), the more confidence investors have in the currency’s value, making them less likely to sell it. Some of Bitcoin’s use cases include cross-border payments, decentralised finance, and smart contracts, while its most notable benefits over fiat currencies are low transaction fees, fast transactions, and anonymity.

Lastly, investors are storing Bitcoin to diversify their assets, i.e. spread their investments across a range of preferably uncorrelated assets. This is an important tool that investors use to minimise risk, and Bitcoin’s low correlation with traditional assets makes it appropriate for this purpose.

Bitcoin Treasury Companies

In August 2020, a business intelligence and mobile software company called MicroStrategy (now Strategy Inc.) invested $250 million in Bitcoin, with the purpose of holding it as a treasury reserve. It reported the weakening of the US dollar and macroeconomic factors as the reason behind this decision. It made several additional large Bitcoin purchases, and its stock performance greatly improved since, inspiring many other companies to follow in its path, resulting in the emergence of Bitcoin treasury companies. These companies treat Bitcoin as a strategic asset, rather than an operational tool or side investment.

Two events additionally incentivised companies to invest in Bitcoin. The first is the Accounting Standards Update No. 2023-08 issued by the FASB in 2023, which came into effect at the end of 2024. It introduced a new accounting rule for cryptocurrencies, requiring crypto assets to be measured at fair value, reflecting both increases and decreases in their value instead of only the decreases as per the previous rule. The second is the establishment of the U.S. Strategic Bitcoin Reserve in 2025.

According to CoinMarketCap, there are currently 177 Public companies with a Bitcoin treasury, holding a total of 1 million BTC. Strategy has the largest holding, amounting to 650,000 BTC.

Volatility

One of the consequences of Bitcoin’s substantial illiquid supply is price volatility. Price is influenced by an asset’s supply and demand; however, for this purpose, only the circulating supply is taken into account. This is the reason when central banks remove money from circulation, it reduces its effective supply. As a result, any changes in supply or demand can have a significant effect on an asset’s price. An increase in demand will have a more pronounced effect given the low circulating supply, and an increase in circulating supply (i.e. long-term holders deciding to sell Bitcoin) will create a greater relative change considering the low starting value.

Future Predictions

Fidelity Digital Assets extrapolates from the current trend that by 2032, over 8.3 million Bitcoins will become illiquid by Q2 2032. That is around 40% of the maximum total amount of 21 million. The trend is one of increasing scarcity, which can contribute to the cryptocurrency’s rising price.

There also exists the possibility that long-term holders will decide to start realising gains. In July 2025, over 80,000 Bitcoins were sold that had been held for 10 or more years, indicating that this is a real albeit not likely possibility.

Conclusion

Bitcoin’s rising illiquidity has become a defining feature, reflecting the growing trust investors have in its legitimacy as a wealth-preserving asset. This is the result of the cryptocurrency’s inherent scarcity and its strong practical utility. The most significant contributors to the phenomenon are Bitcoin treasury companies.

The consequences are a potential increase in price, but also volatility, and while the possibility exists that holders will start realising profits, a large-scale sell-off is highly unlikely to happen.

Bitcoin has been called digital gold, and this description is becoming increasingly appropriate.

Frequently Asked Questions

How Is Bitcoin's Illiquid Supply Different from the Circulating Supply?

There is no fundamental difference between circulating and illiquid Bitcoin, and neither is there an exact definition of illiquid supply. The size of the illiquid supply is an estimate of the number of coins not being actively used based on their possession history and the activity patterns of their owners.

Why Does Bitcoin’s Illiquid Supply Matter?

Understanding the illiquid supply gives insight into the nature of Bitcoin and its changing role in financial systems. A digital asset being used for long-term wealth storage is interesting from a theoretical viewpoint, but it also has practical implications, such as its effects on price, which investors can use to make informed decisions.

Does Bitcoin Becoming More Illiquid Make It Harder to Use as Money?

Not necessarily. Regardless of the size of the illiquid supply, the supply remaining in circulation is fully tradable. It does reinforce Bitcoin’s role as a long-term store of value, rather than a transactional currency, and potential resulting volatility could make it inconvenient for everyday purchases.