The notion that decreasing Bitcoin balances on cryptocurrency exchanges automatically signal a “supply shock” is being challenged, with on-chain data firm Glassnode labeling it an oversimplification in a recent social media post.
The proportion of Bitcoin held on exchanges has dipped below 15%, a level not seen since 2018. Some market observers believe this signifies an impending supply squeeze, fueled by increasing institutional interest through exchange-traded funds (ETFs). While reduced Bitcoin availability on exchanges can alleviate immediate selling pressure, Glassnode argues the situation is more complex than just looking at exchange inflows and outflows.
“The idea that #BTC on exchanges dropping equals a supply shock is a simplification,” Glassnode stated. They added, “That doesn’t negate underlying supply constraints forming.”
“#BTC balance on exchanges dropping = supply shock” is a meme. But that doesn’t mean there aren’t supply constraints – long-term holders are absorbing more $BTC than miners issue. That’s where pressure builds. pic.twitter.com/OZtboXM0BM
Glassnode emphasizes that long-term Bitcoin holders are accumulating more Bitcoin than is being produced through mining. This ongoing accumulation is the primary driver of potential supply pressure.
Analyzing their “Long-term Holder Supply Storage vs. Issuance” indicator, Glassnode illustrates that the increase in Bitcoin held by long-term holders far surpasses the monthly Bitcoin issuance rate.
This data suggests a real tightening of the supply side, as a significant number of holders continue to absorb newly mined Bitcoin. As the available supply shrinks, the market becomes more susceptible to demand surges, potentially leading to significant price fluctuations even with relatively minor increases in buying activity.
Bitcoin Price Performance
Bitcoin reached a new record high of $118,909 on Friday, concluding a four-day period of growth that started from a low of $107,438 on July 8th. The week’s upward momentum triggered a substantial wave of short position liquidations, totaling over $1.15 billion on Friday. This marked the largest single-day liquidation event in the past four years.
The upward trend began gradually on Wednesday, following the public release of the minutes from the Federal Reserve’s most recent meeting. The Bitcoin price also benefited from a rally in technology stocks.
Currently, Bitcoin is trading around $117,093. Market analysts anticipate further price increases in the coming months. Options contracts with expiration dates in late September and December, with strike prices of $140,000 and $150,000 respectively, are exhibiting high levels of open interest.