Coming Supply Shock? Bitcoin Demand Surging as Exchange Supply Plunges
The demand for Bitcoin is growing at an unprecedented rate while the supply of the cryptocurrency held on exchanges has hit record lows. This trend suggests the possibility of a supply shock that could drive prices even higher in the near future.
According to Julio Moreno, the Head of Research at crypto analytics firm CryptoQuant, demand for Bitcoin has now become more important than its supply. Based on the company’s data, demand from permanent holders of BTC has surpassed issuance for the first time ever.
CryptoQuant’s data reveals that known exchange addresses currently hold approximately 1.94 million BTC. This figure represents only 9.8% of Bitcoin’s total circulating supply of around 19.67 million coins. The supply on exchanges has been steadily decreasing from its peak of 2.85 million BTC in July 2021, indicating a growing preference for long-term holding strategies among investors rather than active trading.
A lower supply on exchanges could potentially trigger a supply shock if demand suddenly surges. A supply shock occurs when the available supply of an asset on exchanges sharply declines while demand rises. The resulting buying pressure usually leads to a price increase, which can be further compounded by short sellers adding to their positions to avoid liquidation or forced liquidations themselves.
Bitcoin’s potential for a supply shock is also amplified by the upcoming halving event. During this event, the reward for miners finding a block on the network will be cut in half to 3.125 BTC, effectively halving the supply of newly minted BTC entering the market. The next halving is scheduled to occur on April 20th and is programmed to happen once every 210,000 blocks, or approximately every four years.
With both the growing demand and diminishing supply on exchanges, Bitcoin is poised for a potential supply shock that could drive prices to new heights.