The demand for Bitcoin ($BTC) is experiencing an unparalleled surge, coinciding with a significant decline in the supply of Bitcoin held on crypto exchanges. This situation hints at a potential supply shock that may lead to price escalation in the near future.
Julio Moreno, Head of Research at CryptoQuant, emphasizes that Bitcoin’s demand now outweighs its supply, marking a historic shift. According to CryptoQuant’s findings, demand from long-term holders has surpassed issuance for the first time ever, underscoring the growing significance of demand dynamics in driving Bitcoin’s market movements.
According to CryptoQuant data, known exchange addresses currently hold approximately 1.94 million BTC, representing only 9.8% of Bitcoin’s total circulating supply of approximately 19.67 million coins.
Since reaching a peak of 2.85 million BTC in July 2021, these exchange reserves have been steadily decreasing. This decline in supply on exchanges suggests a shift towards a long-term holding strategy among investors rather than active trading.
It’s important to note that a reduced supply on exchanges could trigger a potential supply shock if demand suddenly surges. A supply shock occurs when the available supply of an asset on exchanges sharply decreases while demand rises.
The resulting buying pressure from the supply shock often leads to a price increase. This increase may be amplified as short sellers are compelled to cover their positions to avoid liquidation, or through forced liquidations themselves.
Bitcoin’s potential for a supply shock is heightened by its upcoming halving event. During this event, the coinbase reward miners receive per block found on the network will be halved to 3.125 BTC, effectively halving the supply of newly minted BTC entering the market.
The upcoming halving event is scheduled for April 20 and is part of Bitcoin’s monetary policy, programmed to occur once every 210,000 blocks, roughly every four years.