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After a brief struggle to regain its footing, Bitcoin finally broke the $52,000 mark on February 14. While $50,000 was a critical psychological benchmark, trading above $52,000 indicates growing market confidence in Bitcoin and may mean the end of the bear market.
During periods of price volatility, especially large upward movements, it is important to analyze the supply availability of Bitcoin. Knowing how much of Bitcoin's supply is theoretically available for trading can show us how much buying or selling pressure the market could absorb. An increase in supply ready for trade can cause the price to fall if there is no demand to meet it. Conversely, a decrease in the supply of Bitcoin that can be purchased quickly can cause a supply crunch leading to an increase in price.
Supply availability cannot be viewed through a single metric. The supply of Bitcoin stored in exchange wallets is generally considered the best proxy, but it offers little depth. CryptoSlate analyzed several other on-chain metrics, including UTXOs and accumulation addresses, to better understand whether tradable supply is tightening.
There are of course many other indicators that can better show the state of the market. For example, differences between long-term and short-term holders' supplies can indicate whether there is an increase in tradable (STH) and non-tradable (LTH) supply, which could create a crisis. However, focusing on less widely used metrics like UTXOs can offer a new perspective on a widely analyzed topic.
Unspent transaction outputs (UTXO) are essential to understanding the Bitcoin network. UTXOs represent the amount of BTC that remains unspent and stored in a wallet after a transaction, serving as a fundamental indicator of Bitcoin's liquidity and movement in the market.
On February 1, the number of UTXOs created stood at 1.304 million, which fell to 1.106 million on February 14. At the same time, the number of UTXO spent remained relatively stable. This drop suggests that there has been a decrease in the willingness to transfer BTC between addresses.
This trend can be seen as the first sign of a potential liquidity crisis, which could have a significant impact on the price of Bitcoin in the coming weeks.
The launch of Spot Bitcoin ETFs in the United States was one of the most significant milestones for Bitcoin in institutional adoption, introducing a regulated mainstream investment vehicle for exposure to Bitcoin. These ETFs, which have seen inflows of more than $4.1 billion since they began trading just over a month ago, use OTC desks to acquire BTC. This acquisition method, previously analyzed by CryptoSlate, has a significant effect on supply availability.
Namely, there was a notable decrease in the amount of Bitcoin held in accumulation addresses, from 3.215 million BTC on February 1 to 3.195 million BTC on February 14, and a minor reduction in the number of these addresses.
This decline may suggest a strategic mobilization of long-held BTC. With a steady increase in supply from long-term holders, this could be attributed to increased sales to OTC desks, which cater to the growing demand for ETFs.
Additionally, there was also an observable decrease in the amount of Bitcoin held in exchange wallets, from 2.363 million BTC on February 1 to 2.345 million BTC on February 14. Although this is a continuation of a year-long trend, it shows that there is a very tangible tightening in the supply available for trading.
The combined factors of a decline in UTXO creation, a reduction in Bitcoin held in accumulation addresses, a decline in exchange balances, and substantial inflows into spot Bitcoin ETFs show a shift significant in the market. This change has the potential to result in an even greater reduction in the supply available for trading amid growing demand, particularly from institutional investors via ETFs.
The article On-Chain Data Shows Bitcoin Supply Tightening appeared first on CryptoSlate.
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