Bitcoin has seen continuous momentum in recent weeks, leading to novel, consistent highs. According to a recent analysis, these dynamics appear not only to be random, but to emerge as a result of significant movements behind the scenes.

Especially the recent ones data indicates that Bitcoin reserves have fallen to a historic low of 2.4 million, signaling a “supply shock” that coincides with the rise in Bitcoin’s price.

This reduction in foreign exchange reserves, combined with forceful demand, has created a favorable environment that could set the stage for further price increases.

There is a supply shock

CryptoQuant analyst, known as Kripto Baykus, in a post on the QuickTake platform shared his predictions for the Bitcoin currency reserve to reach a historic low. In the post, Baykus emphasized that the year started with Bitcoin reserves on exchanges at around 3 million.

However, a steady decline throughout 2024 has led to the current level, reflecting a clear shift in investor behavior. Baykus noted that institutional investors in particular have adopted long-term holding strategies by withdrawing their assets from exchanges. The analyst added:

This shift is particularly noticeable among institutional investors, who have increasingly adopted a “hodl” approach, demonstrating forceful faith in Bitcoin’s future potential.

Meanwhile, Bitcoin’s price is reflecting this move, starting the year around $40,000 and accelerating in November to exceed $100,000, eventually reaching a novel high above $104,000. baykus wrote:

Bitcoin’s confined supply coupled with dwindling reserves is seen as a forceful bullish signal for the market. Investors are pricing in the effects of the supply shock and if the trend continues, Bitcoin will likely break further records at the end of 2024 and in 2025.

Current state of demand for Bitcoin

In addition to supply-side trends, another CryptoQuant analyst known as Yonsei Dent recently turned to the Coinbase Premium Index to offer observations on Bitcoin demand in North America.

This indicator tracks activity on Coinbase, one of the largest exchanges in the region, and has traditionally been used to predict short-term price movements. However, over the past two weeks, the divergence between the Coinbase Premium Index and the price of Bitcoin has raised concerns.

Dent noted that despite the price of Bitcoin increasing from $94,000 to $106,000 during this period, the price of Coinbase Premium dropped. This suggests that the recent price augment may not have been driven by US demand, raising questions about Bitcoin’s medium-term growth dynamics.

Dent noted:

If this price augment is not supported by US demand, it could indicate a fundamental weakness in medium-term growth dynamics. Investors should remain cautious and closely monitor developments.

Featured image created with DALL-E, chart from TradingView