Key Points
- The possibility of a Bitcoin supply shock has increased, especially after the recent crash.
- The Bitcoin exchange reserves indicator is now lower than it was last week, signaling a potential supply shock.
The recent market observations suggest an increased likelihood of a Bitcoin supply shock, especially following the latest market crash.
A supply shock in Bitcoin’s context would occur if exchange reserves plummeted to extremely low levels, while demand either remained steady or surged.
Indications of a Potential Supply Shock
The recent crash in Bitcoin’s value has given some indications of a potential supply shock. The primary sign supporting this expectation is the observation that the Bitcoin exchange reserves indicator is now lower than it was last week.
Despite the massive increase in sell-side pressure during the crash, the indicator only leveled out without any significant uptick.
However, there was a spike in the Bitcoin stablecoin supply ratio in the last two days after its previous decline. This observation is significant since every time this indicator has risen in the past, it has been accompanied by a BTC price rally. This could potentially signal the start of another relief rally for the cryptocurrency.
Bitcoin Velocity Pivots
Bitcoin velocity, or the rate at which it exchanges hands, changes for various reasons. Peaks in excitement, whether negative or positive, may lead to increased velocity. Conversely, when liquidity exits the market and BTC demand decreases, the velocity tends to dip.
The latest surge in BTC velocity started in January and ended in March as liquidity tested the waters, leading to an uptrend. At the time of writing, Bitcoin’s velocity signaled a pivot to the uptrend. If this uptrend continues, it could indicate that BTC is headed for another season of excitement and highly volatile price changes.
The BTC supply on exchanges continues to decline, indicating strong long-term bullish optimism. This optimism is largely due to the involvement of ETFs and high predictions that are yet to be realized.
Higher velocity combined with strong demand could favor the bulls. It would also likely be accompanied by large dips, similar to the recent one. Significant price movements could occur if a supply shock happens, likely pushing up Bitcoin’s velocity.
