Bitcoin supply shock could be on the horizon as the availability of the cryptocurrency on exchanges reaches a five-year low, according to Matt Weller, global head of research at Forex.com. This potential supply shock could be driven by a combination of factors, including a decrease in exchange balances, an increase in demand, and the potential introduction of spot ETFs.
Exchange Balances at a Five-Year Low
Data from Glassnode reveals that the level of available bitcoin on crypto exchanges has decreased to its lowest reading since April 2018. The drop of 2.3 million from a year ago indicates that the supply of bitcoin is becoming increasingly constrained. This reduced supply on exchanges could make it more challenging for investors to acquire bitcoin, potentially leading to a surge in prices as demand continues to grow.
Unmoved Bitcoin Tokens
In addition to the decrease in exchange balances, there are approximately 3 million bitcoin tokens that haven’t been moved in ten years. This further constrains the supply of bitcoin, as these tokens are effectively removed from circulation. The combination of low exchange balances and unmoved tokens could contribute to a potential bitcoin supply shock, driving prices higher rapidly.
Spot ETFs and New Investors
Weller suggests that the introduction of spot ETFs could fundamentally alter the supply and demand dynamics for bitcoin. These ETFs would make bitcoin available to a new set of investors, potentially increasing demand even further. As more investors gain access to bitcoin through spot ETFs, the already constrained supply could struggle to keep up, resulting in a bitcoin supply shock.
Bitcoin as an Uncorrelated Asset
According to Weller, bitcoin has regained its appeal as an uncorrelated asset, separate from equities. This has contributed to its recent rally and could continue to drive demand for the cryptocurrency. If large funds allocate even a small amount to bitcoin based on its uncorrelated investment thesis, it could be a bullish sign for the entire crypto sphere.
Preparing for a Bitcoin Supply Shock
Investors should be aware of the potential for a bitcoin supply shock and consider how it may impact their portfolios. As the supply of bitcoin becomes increasingly constrained, those who hold the cryptocurrency may see significant price increases. However, it is essential for investors to carefully consider their risk tolerance and investment objectives before making any decisions.
Conclusion
The combination of decreasing exchange balances, unmoved tokens, and the potential introduction of spot ETFs could lead to a bitcoin supply shock. This supply shock, coupled with increased demand for bitcoin as an uncorrelated asset, could drive prices higher rapidly. Investors should be aware of these factors and consider how they may impact their portfolios. As the crypto market continues to evolve, staying informed and adapting to changing conditions will be crucial for success.
