Bitcoin has shown continued bullish momentum in recent weeks, resulting in the asset consistently hitting new highs. Recent analysis suggests that this momentum is happening amidst significant movement behind the scenes, so it's not just a coincidence.
In particular, recent data shows that Bitcoin reserves have fallen to a historic low of 2.4 million, suggesting a “supply shock” that coincided with a surge in Bitcoin prices.
This decline in foreign exchange reserves, combined with strong demand, creates a bullish environment that could set the stage for further price increases.
Supply shock underway
In a post on the QuickTake platform, a CryptoQuant analyst known as Kripto Baykus shared his outlook for Bitcoin foreign exchange reserves to reach historic lows. In the post, Baicas highlighted that the year started with around 3 million Bitcoin reserves on the exchange.
However, it steadily declined throughout 2024, reaching current levels reflecting a clear change in investor behavior. Institutional investors, in particular, are adopting long-term holding strategies and withdrawing their assets from exchanges, Baicas noted. The analyst added:
This shift is particularly evident among institutional investors, who are increasingly adopting a “Hoddle” approach, demonstrating strong confidence in Bitcoin’s future prospects.
Meanwhile, Bitcoin's price has reflected this movement, starting the year at around $40,000, accelerating to more than $100,000 in November, and eventually reaching a new peak of more than $104,000. reached. Mr. Vikes wrote:
Bitcoin's limited supply and dwindling reserves are seen as strong bullish signals for the market. Investors are pricing in the impact of supply shocks, and if this trend continues, Bitcoin will likely set further records in late 2024 and into 2025.
Bitcoin’s current demand stance
In addition to supply-related trends, another CryptoQuant analyst known as Yonsei Dent has recently focused on the Coinbase Premium Index to provide insight into Bitcoin demand in North America.
The indicator tracks activity on Coinbase, one of the region's largest exchanges, 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 Bitcoin price has caused concern.
Dent noted that Coinbase's premium fell even as the price of Bitcoin rose from $94,000 to $106,000 during this period. This suggests that the recent price surge may not have been driven by US-based demand, raising questions about Bitcoin's upward momentum in the medium term.
Mr Dent said:
If this price hike is not supported by US-based demand, the medium-term upward momentum may be fundamentally weakening. Investors should remain cautious and closely monitor this development.
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