(Bloomberg) -- Liquidity in the cryptocurrency market is actually getting better since the introduction of US spot Bitcoin exchange-traded funds despite suggestions that surging demand from the ETFs will result in a supply crunch. 

Bitcoin advocates such as MicroStrategy Chairman Michael Saylor and crypto exchange Gemini co-founder Cameron Winklevoss have said pent-up demand from the newly launched funds is at least 10 times as much as the number of new tokens being minted by so-called miners, fueling the more than 20% rally this year in the largest cryptocurrency. However, market data shows there is a plethora of tokens sloshing around.

“There’s plenty of liquidity, but it’s skewed to the ask side significantly,” said Michael Safai, co-founder at quantitative trading firm Dexterity Capital, referencing the minimum price that a seller is willing to accept. “But there’s plenty of liquidity on both sides.” 

One measure of liquidity is market depth, or a market’s ability to absorb orders without significantly impacting price. The liquidity on centralized crypto exchanges, measured by the 1% market depth, has increased since the launch of the spot US Bitcoin ETFs on Jan. 11, according to data compiled by CCData. 

While the spot Bitcoin ETFs have drawn billions of dollars, a significant share of the inflows are likely from redemptions being recycled from the Grayscale Bitcoin Trust into lower cost rivals, traders said. 

The $24 billion investment vehicle has seen about $7 billion in outflows since it was converted from a trust. Some of the largest holders of GBTC have been bankrupt crypto companies such as the exchange FTX and lender Genesis. 

“One piece of news that is on people’s radar also is the recent court decision to allow Genesis to sell their GBTC holdings,” said Ryan Kim, head of derivatives at digital-asset prime brokerage FalconX.

More selling pressure could come as those companies redeem shares and repay creditors, while selling from the miners has been on the rise in part due to an upcoming Bitcoin code update called “the halving,” which is set to drastically reduce mining revenue.

Another reason for the latest rally could be the optimism among momentum traders as they look for a short-term top ahead of positive macro events such as rate cuts, market participants said. 

Read more: What Is Bitcoin ‘Halving’? Does It Push Up the Price?: QuickTake

“We haven’t seen a lot of the classic signs of a BTC physical shortage as of yet in the OTC spot market,” Kim said. “That’s mostly because a lot of ETF market makers can’t touch spot at all. instead, what we’ve seen is that market makers are hedging their intraday price risk using derivatives on approved US venues.”

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