As the amount of Bitcoin available on cryptocurrency exchanges continues to decline, there is a noticeable trend developing that might lead to a supply shock in the future. The effects of this occurrence on the market, nevertheless, are more complicated than they would first appear.
Bitcoin availability on cryptocurrency exchanges has significantly decreased recently, which might cause scarcity on these platforms. A supply shock might result from this circumstance, especially if institutional investors start purchasing Bitcoin in significant quantities. Strong demand from major players combined with a decreasing supply may cause the price of Bitcoin to increase, possibly starting another bullish cycle.
But it’s important to remember that the amount of Bitcoin available has been declining for a while. However, there have been a number of protracted bear markets over this time. The decrease in the supply of Bitcoin rather than guaranteeing a bull market instead suggests a change in holding habits. More investors appear to be opting to keep their Bitcoin outside of exchanges, which may indicate a longer-term investing strategy.
Furthermore, a reduction in the trading supply that is accessible on exchanges might cause liquidity issues. To guarantee that they may join and exit positions at anytime, traders and investors require a certain amount of liquidity. Low liquidity might result in increased slippage and worse transaction profitability, especially for big investors.
However, the situation is likely to change in favour of growing supply in the event of a persistent bull market. In the past, price increases have encouraged more holders to sell their Bitcoin, which has tended to increase the quantity that is readily available on exchanges. Consequently, the supply may start rising pretty soon from its current low point.
