“Paper BTC” Is Counteracting A Bullish Bitcoin Supply Shock, Analyst Explains

Keshav Verma

1 year ago

3 mins read

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An analyst has explained how the growth in “paper BTC” could be counteracting a bullish Bitcoin supply shock from taking effect.

Liquid Bitcoin Supply Has Dropped, But Paper BTC Is Still At Significant Levels

In a new post on X, analyst Willy Woo shared insight into how the paper BTC compares against the real BTC being traded. According to the analyst, “paper BTC” refers to the combined futures open interest value.

Here is a chart that shows the trend in the ratio between the two types of Bitcoin over the past couple of years:

The data for the paper vs real BTC ratio since January 2021 | Source: @woonomic on X

The graph shows that the ratio’s value has fluctuated between 0.2 and 0.3 in recent months, suggesting that the paper Bitcoin has been 20 to 30% more than the real coins during this period.

The real supply of the cryptocurrency may be divided into three categories: illiquid, liquid, and highly liquid. The on-chain analytics firm Glassnode puts coins into these divisions based on the behavior of the investors holding them.

To be more precise, the ratio between the cumulative outflows and inflows of the investor since they entered the market is used to define their liquidity. This ratio’s value approaches zero for the illiquid supply, as holders of this cohort rarely move coins out of their addresses.

Similarly, the value becomes close to 1 for the highly liquid supply, as investors of this class tend to shift their coins quickly. In the above ratio, Woo has only used this highly liquid supply as a measure of the “real BTC.”

As the chart below shows, this highly liquid Bitcoin supply has been going down recently.

Looks like the value of the metric has been going down in recent years | Source: @woonomic on X

The analyst notes that the less the number of coins in this supply, the more bullish is the outlook for Bitcoin since there are a lesser amount of coins available to be bought.

Another analyst, James V. Straten, replied to Woo’s post with a chart that combines the liquid supply into the ratio, which, while less fluid than the highly liquid supply, still constitutes a notable part of the BTC traded supply.

The paper vs real BTC ratio with liquid supply accounted for | @jimmyvs24 on X

According to Straten, the liquid and highly liquid supplies have observed a combined drawdown of 500,000 BTC (around $13.3 billion at the current exchange rate) since May 2023.

However, as the paper BTC is still significantly more than the real BTC, any “supply shock” effects being created out of the real supply becoming less liquid are being more than made up for by the increase in the paper supply.

BTC Price

Bitcoin has registered a sharp decline in the past day, as the coin has lost the $27,000 level and is currently floating around the $26,500 mark.

BTC has dropped during the last 24 hours | Source: BTCUSD on TradingView

Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, Glassnode.com

Keshav Verma

Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.

Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.

In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.

Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.

Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..

Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.

Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.

As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.

Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.

Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.

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