Supply Shock: Bitcoin Exchange Reserves Decline, Rally Incoming?

Bitcoin (BTC) may be heading into a supply shock in the coming weeks, and considering historical data, this is a bullish sign.

On-chain data analyzed by the market intelligence platform CryptoQuant has revealed that bitcoin reserves on crypto exchanges are plummeting rapidly. This is seen in the exchange reserve chart, which tracks the amount of bitcoins investors hold on trading platforms.

At the time of writing, there were 2.4 million bitcoins in exchange reserves, compared to roughly 2.6 million BTC a few weeks back. This trend suggests that investors are withdrawing their bitcoins from exchanges and moving them into self-custody, reducing the circulating BTC supply available for trading. 

The decline also signals that market participants have entered an accumulation phase and are aggressively loading their bags in preparation for the next BTC rally.

Bitcoin Could See Supply Shock 

With bitcoin exchange reserves reducing, the market will see a decline in available supply, possibly leading to a supply shock. CryptoQuant analyst Shayan believes this supply shock could drive the next BTC rally, as a significant reduction in available supply has fueled previous surges in past cycles.

“Given that exchange reserves serve as a supply-side indicator, this persistent decline could contribute to further price appreciation in the coming weeks,” Shayan stated.

Meanwhile, BTC was hovering around $97,100 at press time, down slightly in the past 24 hours and 8% over the past week. The cryptocurrency has been struggling over the last few days alongside equities markets due to policy changes in the United States economy. If the decline in exchange reserves persists, BTC could surge above $100,000 again and possibly set new all-time highs in the coming weeks.

ETH Shows Similar Signs

Interestingly, ether (ETH) exhibits market dynamics similar to BTC but on derivative crypto exchanges. A separate report by another CryptoQuant analyst, Amr Taha, disclosed that ether’s exchange netflow on derivative exchanges has dropped below 300,000 ETH for the first time since August 2023.

Similar to BTC, ETH leaving derivative exchanges is a sign that traders are moving their assets to cold storage or closing their leveraged positions. This, in turn, reduces the ETH supply available for trading and selling pressure on the digital asset, making it more difficult for the price to decline. If demand for ETH remains stable or increases, then the asset’s value will go up.