By Lesa 
Bitcoin is being snapped up by corporations. Currency held on exchanges is now at a record low as a result. But will this buying spree continue?
The past year has been a volatile one for bitcoin. With more market adoption, its price has gone on a steady upward trend. Yet that has ground to a halt, as the supply of the cryptocurrency has dried up. The culprit is corporate America, snapping up more than is being produced and far more than exchange-traded funds.
Corporate Bitcoin Holdings
For a third consecutive quarter in a row, companies are buying up more bitcoin than cryptocurrency exchange-traded funds. In the second quarter of the year, around 131,000 BTC were acquired by public companies. This increased their buying levels by 18%. Currency purchased by bitcoin exchange-traded funds showed only an 8% increase.
For the first half of the year, this brought the total to 245,000 BTC. This was double the amount purchased by ETFs and is a 375% increase on the year before. Public companies now hold around 4% of the total supply.
This accumulation has had a marked impact on the price of bitcoin. A look at the bitcoin price chart shows that at the time of writing, it is worth $107,741. This is a figure that has hung around for weeks now, with seemingly no indication of a renewed bull run or a dip in price. For this, there is one very simple reason: All this buying has made bitcoin scarce.
The Scarcity of Bitcoin
This tactic has been inspired by Michael Saylor’s Strategy. In 2020, it was the first company to open a bitcoin treasury, switching its cash assets for bitcoin. Since then, it has turned its main business model into one that acquires bitcoin, moving away from its original roots as a software company. As the price of bitcoin has recently boomed, so have the share prices.
Thus, many companies have raced to copy the concept. From meme stock company GameStop to Spanish coffee chain Vanadi, everyone is buying bitcoin. This has made it disappear from exchanges.
As of June, the bitcoin held on exchanges is at record lows. This is hovering around the 1.0 million BTC mark. Around 550,000 coins have left exchanges in the last year alone. The illiquid Supply is also at an all-time high. This is the value of bitcoin held in long-term wallets, and this currently stands at 14 million BTC.
Added to this is the introduction of bitcoin ETF products last year. These have slowly been buying up the supply for some time. On many occasions, they have purchased more bitcoin than is currently being mined. This is also depleting bitcoin stocks.
The Differences Between Retail and Corporate Buyers
Retail buyers and corporate ones are purchasing for two very different reasons, and in very different ways. Nick Marie, head of research at Ecoinometric, noted that corporations are doing this to increase shareholder value. The average institutional and retail customers, buying through ETFs or directly, are doing this for investment. These companies do not care if the price of Bitcoin is high or low, changing buying trends. This is done to look more attractive to customers.
There is also a difference in how these purchases are made. Major corporations that want to purchase bitcoin in the millions can’t do this on normal exchanges, as this would cause price slippage. Instead, they use brokers who connect them to sellers in private networks. The alternative is that they do business directly with specialist principal desks who hold large amounts, and make money on the buy and sell price.
Will This Trend Continue?
The general consensus is that this trend will fade over time. When more companies adopt the concept, its effectiveness dilutes. There is also more legislation coming into force about bitcoin and cryptocurrencies as the months pass. This makes holding it directly less risky, and many people may turn to that, as opposed to using the safe haven of company stocks to do so.
Michael Saylor, Head of Strategy, of course, sees no end to this. He believes companies can scale bitcoin holdings as fast as they can issue credit or equity. He also added that issuing billions of securities to buy bitcoin is much faster than a traditional business cycle.
However, he is bound to say this, and warnings have been raised about the practice. Many companies that have done so now have weak Net Asset Values, due to the increased number of shares sold. This can bring them perilously close to a situation where their bitcoin holdings are worth more than the value of the company itself.
It also overlooks bitcoin’s inherent volatility. While there is currently a boom period, it may not always be that way. Investors and companies must remain cautious and keep watching the markets and changing values.