- As Bitcoin ($BTC) declines by almost 6% over the past week, dropping below the $67,000 mark, data reveals that its supply on cryptocurrency exchanges is now at its lowest since December 2021.
- On-chain analytics firm Santiment reveals that approximately 942,000 BTC are currently stored on cryptocurrency exchanges, a figure reminiscent of December 2021 when Bitcoin’s price navigated a sharp drop from around $50,000 to lows of $40,000 amidst a bear market.
- Historical trends indicated by Santiment suggest that with a limited supply of BTC available for sale, the overall risk to the crypto market diminishes significantly.
Bitcoin supply on exchanges plunges to a 2-year low as price volatility shakes the market.
Bitcoin’s Supply Crisis: A Double-Edged Sword
Bitcoin’s exchange supply has dwindled to its lowest level since December 2021, totaling around 942,000 BTC, per Santiment data. During December 2021, Bitcoin was trading around $50,000 but then plummeted to $40,000 following broad market contractions and eventually found a bottom near $16,000 post-FTX collapse. This decrease in available BTC on exchanges could imply reduced selling pressure, potentially cushioning Bitcoin from drastic price declines.
Growing Store of Ethereum and Tether in Exchanges
In contrast to Bitcoin, Ethereum’s exchange supply has increased to 17.98 million ETH, still significantly below its peak of nearly 30 million ETH in May 2020. Tether’s USDT presence on exchanges has surged to 16 billion tokens, approaching its all-time high. A robust stablecoin presence on exchanges often signals readiness among investors to purchase additional cryptocurrencies, indicating potential upward movements given the low Bitcoin supply.
Emergence of Market-Neutral Strategies
There’s an increasing preference for market-neutral strategies within the cryptocurrency realm, exemplified by a record number of short positions on BTC futures. Investors are leveraging the basis trade—capitalizing on price differentials between spot and futures markets. By purchasing Bitcoin on the spot market while selling futures contracts at a premium, traders profit while maintaining a neutral market stance. This tactic has gained traction with the introduction of spot Bitcoin ETFs in the United States, simplifying access to Bitcoin exposures without directly holding the cryptocurrency and tapping into arbitrage opportunities presented by futures premiums.
Conclusion
The sharp decline in Bitcoin’s exchange supply highlights a critical dynamic in the cryptocurrency market. While it suggests a potential cushion against significant price drops, the increased ETH and USDT holdings on exchanges coupled with strategic trading practices like the basis trade, point towards an evolving and sophisticated market posture. As investors navigate these developments, Bitcoin’s future movements remain a pivotal interest.
