Despite notable players like Microstrategy bolstering their positions with substantial acquisitions, Bitcoin (BTC) has struggled to recapture the $28,000 mark in September. Now, let’s delve into on-chain analysis to assess how the recent reduction in BTC supply on exchanges might influence Bitcoin’s price dynamics in October 2023 and beyond.
Throughout this month, there has been a discernible uptick in Bitcoin holders relocating their assets from cryptocurrency exchanges into secure, long-term storage solutions. Curiously, rather than serving as a catalyst for a Bitcoin price surge, on-chain market data has unveiled a potentially worrying pattern.
The supply of Bitcoin on exchanges has plummeted to unprecedented lows.
The price of Bitcoin has experienced a 13% decline from its peak of $31,500 in the second half of 2023, which was reached in July. Nevertheless, noteworthy macro developments, such as progress in the approval of a Bitcoin Spot ETF, have prompted institutional investors to amass Bitcoin.
In contrast to their preference for secure self-custody storage options, the recent accumulation by major institutional players has resulted in a substantial decrease in the supply of Bitcoin on exchanges.
As illustrated below, only 5.83% of the total Bitcoin in circulation is currently held in wallets hosted by cryptocurrency exchanges, marking the lowest percentage since August 24.
The Exchange Supply Percentage metric monitors the proportion of a cryptocurrency’s circulating supply that is currently held on cryptocurrency trading platforms.
Traditionally, Bitcoin (BTC) prices have often experienced rallies when the supply on exchanges decreases. However, in a counterintuitive market development, prices have also been on a downward trend in September.
Interestingly, this recent decline began shortly after Grayscale made significant progress toward obtaining approval for its Spot Bitcoin ETF. Since then, prominent institutional investors have made substantial Bitcoin acquisitions.
Microstrategy, for instance, opted to sell its own shares to acquire 5,445 BTC at a cost of $147.3 million. Arkham Intelligence reported that Grayscale’s Bitcoin Trust Holdings now encompass BTC valued at $16 billion, distributed across more than 1,000 addresses.
Many large-scale investors, often referred to as whales, typically favor secure cold storage options for heightened security and internal controls. This preference appears to be a contributing factor to the decrease in Bitcoin supplies on exchanges.
The prevalence of bearish sentiment has led to a substantial decline in trading activity.
As Bitcoin whale investors continued to accumulate their holdings, the prevailing bearish sentiment had an adverse effect on trading activity.
As illustrated below, Bitcoin’s daily trading volume was at $29.4 billion on August 29. However, it has steadily declined to reach a low of $12.7 billion as of September 28. This marks a significant 57% decrease in trading activity.
Typically, during bear markets, Spot Trading volumes tend to decrease as dissatisfied holders abstain from conducting transactions. Consequently, a decline in BTC spot volumes indicates waning investor interest.
Historical data patterns reveal that Bitcoin’s price has often experienced rallies when trading volumes surge and exchange reserves dwindle. This trend is clearly visible around the dates of March 11 and June 21, 2023, as depicted in the chart provided.
In summary, the purchasing power wielded by these prominent whales is unlikely to trigger a price surge unless there is a substantial uptick in market demand.
Nonetheless, given the proximity of exchange supply to monthly lows, BTC is poised to experience a rapid upswing when market sentiment shifts towards bullishness.
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BTC Price Forecast: Bullish Momentum Puts $30,000 in Sight for Bulls.
From an on-chain perspective, the decline in Bitcoin Exchange Supply provides an opportunity for the bullish camp to propel the price toward the $30,000 mark.
This outlook is supported by Global In/Out of Money Around Price (GIOM) data, which illustrates the distribution of entry prices among current BTC holders and further bolsters this forecast.
The GIOM data suggests that if Bitcoin manages to surmount the initial resistance at $28,500, the relatively low market supply could trigger an upward push towards the $30,000 threshold.
As illustrated below, approximately 5.86 million addresses have acquired 2.64 million BTC at an average price of $28,576. If these holders decide to take profits early, they may create a significant selling barrier that could potentially hinder the rally.
However, should trading volumes experience a substantial uptick, it could pave the way for the next BTC bull rally to surpass the $30,000 mark.
On the flip side, the bearish scenario could come into play and nullify the optimistic prediction should the Bitcoin price dip below the $25,000 mark. Yet, as illustrated below, a total of 5.44 million addresses have acquired 2 million BTC at the highest price point of $26,103.
Should these addresses remain resolute, their presence is likely to act as a significant obstacle against a bearish downturn.
Nevertheless, if the BTC price fails to maintain this crucial support level, there is potential for a reversal towards the $25,000 range.
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