In recent weeks, Bitcoin has experienced sustained bullish momentum, leading the asset to continuously reach new highs. According to recent analysis, this momentum appears to be more than just random, as it coincides with significant actions behind the scenes.
Specifically, recent data indicates that Bitcoin reserves have dropped to a historical low of 2.4 million, suggesting that the 'supply shock' aligns with the surge in Bitcoin prices.
The reduction in foreign exchange reserves, combined with strong demand, has created a bullish environment that could lay the groundwork for further price increases.
Supply Shock in the Making
An analyst from CryptoQuant named Kripto Baykus shared insights on the historical lows of Bitcoin reserves on exchanges in an article on the QuickTake platform. In the blog post, Baykus emphasized that at the beginning of this year, Bitcoin reserves on exchanges were about 3 million.
Bitcoin Exchange Reserves. | Source: CryptoQuant
However, the steady decline throughout 2024 has led to the current levels, reflecting a noticeable shift in investor behavior. Baykus notes that especially institutional investors have embraced a long-term holding strategy, withdrawing their assets from exchanges. The analyst adds:
This shift is particularly evident among institutional investors, who are increasingly adopting a 'hodl' approach, indicating confidence in Bitcoin's future potential.
Meanwhile, Bitcoin's price also reflects this trend, starting the year around $40,000, accelerating past $100,000 in November, and ultimately reaching new highs above $104,000. Baykus wrote:
The limited supply of Bitcoin, coupled with the reduction in reserves, is seen as a strong bullish signal for the market. Investors are digesting the impact of the supply shock, and if this trend continues, Bitcoin may further break records by the end of 2024 and into 2025.
Current Demand Position for Bitcoin
In addition to supply-related trends, another CryptoQuant analyst named Yonsei Dent recently turned to the Coinbase premium index to provide insights into Bitcoin demand in North America.
The indicator tracks activity on Coinbase, one of the largest exchanges in the region, traditionally used to predict short-term price movements. However, the divergence between the Coinbase premium index and Bitcoin prices over the past two weeks has raised concerns.
Bitcoin Coinbase Premium Gap. | Source: CryptoQuant
Dent notes that despite Bitcoin's price rising from $94,000 to $106,000 during this period, the Coinbase premium has decreased. This suggests that the recent price surge may not have been driven by demand in the U.S., raising questions about the mid-term momentum of Bitcoin's rebound.
Dent notes:
If this price surge is not supported by demand in the U.S., it could indicate potential weakness in mid-term upward momentum. Investors should remain cautious and closely monitor this development.