Bitcoin (BTC) has continued to register immense volatility in the last few weeks, with the price dropping below the $50,000 mark, a factor that seems to be affecting the asset’s supply on exchanges. As of December 13th, 2021, Bitcoin’s supply on exchanges had hit a 31-month low at 11.96% of the asset’s total supply, on-chain data provided by Santiment indicates.
Bitcoin supply on exchanges. Source: Santiment
According to Santiment, the decline in the supply should be considered a positive outlook as it points to limited chances of any significant sell-offs. Notably, the Bitcoin supply on exchanges is a vital indicator of the overall BTC network activity as it can signal the asset’s direction in the short to medium term.
Drivers for Bitcoin drop in exchange supply
The presumed logic behind the dip is that more Bitcoin has moved off exchanges, potentially to cold storage wallets, as investors become more bullish about the long-term value of the number one ranked cryptocurrency, with recent on-chain transaction value dropping to a 3-month low also supporting this notion. This aspect fuels less selling pressure as investors bet that the bearishness might be gradually reverting to a more supportive outlook.
In general, the drop to below $50,000 indicates a lot of accumulation at this level, mainly by whales who prefer to ‘HODL‘ in anticipation of a price rally. The HODLing behavior offers a cushion to investors since they are not susceptible to near-term price changes.
With investors potentially reverting to HODLing, the move also aligns with the growing status of the asset as a store of value.
By press time, Bitcoin was trading at $48,700, having made gains of below 1% in the last 24 hours.
Source: Finbold.com