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According to data from CryptoQuant, Bitcoin (BTC) reserves on cryptocurrency exchanges have fallen to their lowest level in several years. This drop coincides with the current bull market, which has pushed the price of the digital asset closer to the $100,000 mark. This significant drop could have important implications for the supply and demand dynamics of the asset.
Is investor confidence increasing in Bitcoin?
During a bull market, Bitcoin reserves on exchanges increase as long-term holders (LTH) and short-term holders (STH) transfer their holdings to trading platforms to make profits. However, the current bull market is breaking this trend, as BTC currency reserves decline.
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Data of Cryptoquant indicates that more than 171,000 BTC have been withdrawn from crypto exchanges since pro-crypto Republican candidate Donald Trump won the US presidential election in November. The large amount of BTC being withdrawn from exchanges suggests that holders are likely moving their holdings to cold wallets, indicating long-term confidence in BTC.
According to the chart below, BTC exchange reserves saw a sharp drop starting in November 2022, going from 3.33 million BTC on November 5 to 2.93 million BTC on December 21.
Another notable drop began in February 2024, probably in anticipation of the Halving Bitcoin in April and the resulting shortage of supply of the digitally programmed asset. During this period, reserves decreased from 3.05 million BTC to 2.63 million BTC as of October 30, a decrease of 13.77% in eight months.
Foreign exchange reserves stand at just 2.46 million BTC, the lowest level in years. This ongoing drop hints at a possible Bitcoin supply crisis, which could drive its price higher in the coming months.
Illiquid BTC Supply Continues to Grow
Another piece of information that supports the long-term BTC holding hypothesis is glass node illiquid supply metric. The chart shared below shows that the illiquid supply of the digital asset has grown by 185,000 BTC in the last 30 days.
Notably, the illiquid supply now represents approximately 14.8 million BTC, representing almost three-quarters of the current circulating supply of 19.8 million BTC. If this trend continues, the price of Bitcoin could see a significant rise due to tight supply. However, this could also introduce greater volatility.
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While declining currency reserves and increasing illiquid supply are long-term bullish indicators for Bitcoin, short-term price movements could see a brief correction. According According to crypto analyst Ali MartÃnez, BTC has formed a head and shoulders pattern on the hourly chart, which may trigger a settlement that can raise the price of the asset to $90,000.
That being said, another experienced crypto analyst, Rekt Capital, saying that after briefly touching the $98,000 price level, BTC has already entered the parabolic phase of the rally. BTC is trading at $94,968 at press time, down 1.4% in the last 24 hours.
Featured image from Unsplash, charts from CryptoQuant, Glassnode, X and Tradingview.com
