Historic Plunge in Bitcoin Reserves: Could Supply Shortage Propel Prices Up?
According to CryptoQuant data, Bitcoin reserves on cryptocurrency exchanges have declined to their lowest levels in recent years. This drop coincides with the bull market that has pushed the crypto asset closer to $100,000. This significant decrease in reserves may have substantial implications for the asset's supply-demand dynamics.
In bull markets, long- and short-term investors typically transfer their assets to exchanges to realize profits. However, in the current bull market, this trend has reversed, and Bitcoin reserves are rapidly decreasing. Since Donald Trump's victory in the U.S. presidential elections, approximately 171,000 BTC have been withdrawn from exchanges. These withdrawals indicate investors' long-term confidence in Bitcoin, as they move their assets to cold wallets.
According to Glassnode data, Bitcoin's illiquid supply has increased by 185,000 BTC in the last 30 days. This means that nearly 75% of the circulating supply is classified as illiquid. The decrease in Bitcoin reserves and the growing illiquid supply signal a supply shortage that could drive Bitcoin prices higher. However, this situation could also lead to increased volatility.
In the short term, it has been noted that BTC is forming a head and shoulders pattern, which could initiate a wave of selling and potentially drive the price down to $90,000. However, experienced analysts state that Bitcoin entered a parabolic uptrend after touching the $98,000 level and is currently trading at $94,968.
With the rising interest in altcoins in recent weeks, Bitcoin has faced a slowdown in its upward trend. Trading at $99,540, just 3.8% away from its record high, sustainability concerns are emerging. As investor interest shifts towards crypto assets like Ethereum and XRP, constraints on BTC's growth are becoming evident.
In addition to inter-asset diversification, the crypto ecosystem continues to be influenced by more positive regulatory expectations, alongside Trump’s supportive stance. In the BTC options market, risk hedging in options set to expire by the end of the year has increased. Amid ongoing unease among investors, there is a risk of retesting low support levels in BTC's price movements.
Recently, approximately $2 billion worth of BTC seized by the U.S. government from Silk Road has been transferred to Coinbase (COIN). Such movements typically lead to speculation among investors, and similar government sales in the second and third quarters of the year had resulted in significant declines in BTC prices. Currently, BTC's situation at existing levels is deemed critical.
This week, Bitcoin has been moving in a weak trend similar to last week, trading at $96,660 with a half-point decline.