The cryptocurrency exchange reserves of Bitcoin (BTC) reached record lows below 2 million BTC in early April. With now less than 10% of Bitcoin’s circulating supply, an increased demand has the potential to cause a supply shock.
Notably, Finbold retrieved data from CryptoQuant on April 8 that shows 1.94 million BTC in all known exchange addresses. This represents around 9.8% of Bitcoin’s circulating supply of 19.67 million coins issued, by press time.
The exchange reserves have been in a downtrend since a peak of 2.85 million BTC in July 2021. On that note, these reserves diminish as Bitcoin investors withdraw the coins from these entities’ custody. A decision that shows intent to hold Bitcoin and not actively selling or trading it.
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Meanwhile, BTC trades at $69,892, challenging the $70,000 psychological resistance level.
What is a supply shock and its price effects on Bitcoin?
A Bitcoin supply shock occurs when the available supply of Bitcoin on exchanges suddenly decreases while facing an increased demand. Essentially, this can translate to a higher buying volume, with a lower selling volume, driving the prices higher.
One of the factors that contribute to a supply shock is exchange reserves dropping through significant withdrawals. Consequently, the reduced supply available for trade can lead to a significant increase in Bitcoin’s price.
Moreover, the Bitcoin halving event, which occurs approximately every four years, further exacerbates the supply shock. After the halving, the amount of newly minted and issued Bitcoins awarded to miners is cut in half.
In particular, the Bitcoin Magazine believes a supply shock is imminent for Bitcoin in the joint of these factors.
Therefore, this reduction in new supply, coupled with the decreased Bitcoin reserves of exchanges, intensifies the economic effects. As a result, the heightened demand for BTC in the face of a dwindling supply has the potential to trigger a sharp rise in its price.
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