Will BTC Gain From Supply Crunch?
Bitcoin (BTC) reserves on cryptocurrency exchanges have fallen to multi-year lows, according to CryptoQuant data. The decline coincides with the ongoing bull market, which has pushed the price of the digital asset closer to the $100,000 mark. This significant decline could have a significant impact on the supply and demand dynamics of the asset.
Investor confidence in Bitcoin growing?
During a bull market, Bitcoin reserves on exchanges increase as long-term holders (LTH) and short-term holders (STH) move their Bitcoin holdings to trading platforms to profit. However, the current bull run is breaking this trend as Bitcoin trading reserves dwindle.
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data More than 171,000 BTC have been withdrawn from cryptocurrency exchanges since pro-crypto Republican candidate Donald Trump won the November US presidential election, Cryptoquant said. The large amount of Bitcoin being withdrawn from exchanges suggests that holders may move their Bitcoin holdings to cold wallets, indicating long-term confidence in Bitcoin.
As shown in the chart below, starting in November 2022, BTC trading reserves dropped sharply, from 3.33 million Bitcoins on November 5 to 2.93 million Bitcoins on December 21.
Another significant decline begins in February 2024, possibly due to expected Bitcoin Halving situation in April and the consequent shortage in supply of digital programming assets. During this period, reserves fell from 3.05 million Bitcoin to 2.63 million Bitcoin as of October 30, a decrease of 13.77% in eight months.
Foreign exchange reserves are only 2.46 million Bitcoins, the lowest level in years. This continued decline hints at a possible supply crunch for Bitcoin, which could drive its price higher in the coming months.
Bitcoin illiquid supply continues to grow
Another data point supporting the long-term Bitcoin holding hypothesis is glass node Illiquidity supply indicator. The chart shared below shows that the digital asset’s illiquid supply has increased by 185,000 BTC over the past 30 days.
Notably, the illiquid supply currently accounts for approximately 14.8 million Bitcoins, accounting for nearly three-quarters of the current circulating supply of 19.8 million Bitcoins. If this trend continues, Bitcoin’s price could surge due to supply shortages. However, this could also lead to increased volatility.
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While declining foreign exchange reserves and increasing illiquid supply are bullish indicators for Bitcoin in the long term, short-term price action could see a brief correction. according to Cryptocurrency analyst Ali Martinez says BTC has formed a head-and-shoulders pattern on the hourly chart, which could trigger sell off This could push the asset’s price to $90,000.
That said, another veteran cryptocurrency analyst, Rekt Capital, explain After briefly touching the $98,000 price level, BTC has entered the parabolic phase of its rebound. As of press time, BTC was trading at $94,968, down 1.4% in the past 24 hours.
Featured images from Unsplash, charts from CryptoQuant, Glassnode, X and Tradingview.com
