Bitcoin has seen continued bullish momentum in recent weeks leading to a new steady rise in the asset. According to recent analysis, this momentum does not appear to be a coincidence as it comes amid major moves behind the scenes.
In particular, the latest data shows that Bitcoin reserves have fallen to a historic level of 2.4 million, indicating a “supply shock” that has coincided with the rise in the price of Bitcoin.
This reduction in exchange reserves, coupled with strong demand, has created a bullish environment that could set the stage for further price increases.
A Supply Shock In The Making
CryptoQuant analyst known as Kripto Baykus shared the idea of saving Bitcoin currency reaching historic lows in a post on the QuickTake platform. In the post, Baykus emphasized that the year started with approximately 3 million Bitcoin reserves in trading.
However, a sharp decline during 2024 led to current levels, indicating a clear change in investor behavior. Institutional investors, in particular, have adopted long-term holding strategies, taking their assets out of the trade, Baykus noted. The commentator added:
This change is particularly noticeable among institutional investors, who have increasingly adopted the “hodl” approach, showing strong confidence in Bitcoin’s future potential.
Meanwhile, the price of Bitcoin matched this movement, starting the year at about $40,000 and accelerating in November to exceed $100,000, finally reaching a new high of more than $104,000. Baykus wrote:
The limited supply of Bitcoin, combined with dwindling reserves, is seen as a strong bullish signal for the market. Investors are pricing in the effects of the supply shock, and if this trend continues, Bitcoin is likely to break additional records in late 2024 and 2025.
The Current State of Bitcoin Demand
In addition to supply-related trends, another CryptoQuant analyst known as Yonsei Dent recently turned to the Coinbase Premium Index to provide insight into Bitcoin demand in North America.
This metric tracks activity on Coinbase, one of the largest exchanges in the region, and has traditionally been used to predict short-term price movements. However, in the past two weeks, the difference between the Coinbase Premium Index and the Bitcoin price has raised concerns.
Dent pointed out that despite the price of Bitcoin rising from $94,000 to $106,000 during this period, the Coinbase Premium has decreased. This suggests that the recent price increase may not have been driven by US-based demand, raising questions about the medium-term momentum of Bitcoin’s rally.
Dent noted:
If this price increase was not supported by US-based demand, it may indicate a fundamental weakness in the medium-term increase. Investors should remain vigilant and monitor these developments closely.
The featured image was created with DALL-E, a Chart from TradingView
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