Bitcoin is facing a liquidity crisis, but this crypto app has a solution

A crypto app has warned that Bitcoin is facing a liquidity crisis — and the lack of supply on the open market could have ramifications for buyers and sellers alike.

According to SwissBorg, the amount of Bitcoin held in exchanges’ wallets has decreased markedly in recent months. This has resulted in a number of major trading platforms suffering outages — with some forced to impose temporary limits on buy orders.

Whereas many crypto apps rely solely on one exchange, SwissBorg is connected to four leading platforms: Binance, Kraken, HitBTC and LMAX. The company says this means there is a much higher probability that its customer’s orders can be routed through a functioning exchange in times of high market volatility.

The current climate

SwissBorg analyst Fidel Velasco says the daily moves of above 10% that Bitcoin has seen at times is rather unusual for an asset with a total market cap of over $1 trillion.

Drilling down into the fundamentals helps explain why this is the case. Firstly, the fact that BTC monetary policy isn’t controlled by a single entity means that wild swings are to be expected. Second, institutional adoption has coincided with a dramatic reduction in the amount of new coins entering circulation — and in the second half of 2020, Grayscale Bitcoin Trust purchased 133% of the new Bitcoin mined during this period.

Although Bitcoin theoretically has a circulating supply of 18.68 million, the reality is much different. A December 2020 report from Glassnode found that 14.5 million BTC (about 78% of the circulating supply) is held by illiquid entities. All of this means that just 4.2 million BTC is available for buying and selling. Decreases in liquidity usually coincide with spikes in the value of this digital asset, such as the one we’ve seen so far this year.

To compound the problem, Velasco cited figures from Bitcoin investment manager Timothy Peterson that suggests 4% of Bitcoin’s available supply is lost every year — with an estimated 1,500 BTC a day being rendered inaccessible after users lose their hardware wallets and private keys. Indeed, a number of horror stories have done the rounds in recent months, including a software engineer who lost the password to a hard drive wallet that contained 7,002 BTC. SwissBorg says it addresses this problem through multi-party computation technology, a keyless approach that was pioneered by Curv.

More insights from SwissBorg here

Keeping markets moving

SwissBorg says that its Smart Engine helps users continually get the best price — irrespective of current market conditions.

A grand total of 258 unique crypto-to-fiat pairs are available. Users are given the freedom to exchange any of the 15 fiat currencies it supports for any of the 12 cryptocurrencies on the platform, regardless of whether that pair already exists on another exchange.

Smart Exchange Reports ensure that investors get full visibility of the path their transaction has taken, too.

SwissBorg’s goal is to help take the guesswork out of investing, and take advantage of the price differences that can emerge across exchanges at busy times.

Full transparency on fees is also guaranteed — and the crypto app says that it takes pride in offering a crucial point of difference from rivals. Some platforms claim to deliver “zero fees” but end up hiding them in the exchange rate or spread that’s on offer. Instead, SwissBorg offers the best possible price, and charges a small transparent fee that is then reinvested in its ecosystem.

As previously reported by Cointelegraph, SwissBorg is also making yield farming accessible to all — bringing the advantages of centralized and decentralized finance together through its Smart Yield wallet.

Learn more about SwissBorg

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