In the ever-evolving world of Bitcoin, understanding supply and demand dynamics is crucial. A recent report by Glassnode sheds light on the impact of supply expansions on Bitcoin’s price action, offering valuable insights into market behavior.
The report delves into the “hot supply” concept, which refers to the volume of coins actively participating in price discovery.
By analyzing the movement of significant supply sources, such as the Mt. Gox funds (137k BTC) and confiscated bitcoin held by the US government (204k BTC), the study demonstrates that a single quarter of similar demand inflows could absorb the entire distribution from both sources.
The study also examines the availability of BTC for sale, particularly in light of the recent surge in applications for a Bitcoin ETF. By analyzing the fund flow of top exchanges in the US and Asia, Glassnode reveals that Asia has exhibited more substantial accumulation during trading hours, while the US markets have shown weaker demand in 2023.
Further analysis of short-term holder behavior suggests a shift in market psychology from the bearish sentiment of 2022. The recent rally in Bitcoin’s price has been supported by these holders, who have built their positions and provided a strong support level.
SEC Pressure & A Surge In Bitcoin ETF Applications
In the regulatory landscape, the Securities and Exchange Commission (SEC) has been exerting pressure on the top US cryptocurrency exchanges. However, the past week witnessed a wave of applications for a spot Bitcoin ETF, led by Blackrock, the largest global asset manager. This development triggered a rally in Bitcoin’s price, reaching new yearly highs.
Examining regional shifts, the report assesses coin flows through on-ramping entities and categorizes exchanges based on their headquarters (on-shore vs. off-shore). Interestingly, off-shore exchanges have experienced net inflows, while on-shore exchanges have seen net outflows, suggesting US-based investors are accumulating or staying neutral.
To gauge demand expansion or contraction, the study introduces the concept of measuring the momentum of supply, which serves as a proxy representation of demand.
It reveals that when new demand enters the market, existing investors tend to transact and distribute their coins at higher prices. This spending on older coins necessitates an expansion of the younger supply region.
The report concludes by emphasizing the significance of hot supply and its relatively small fraction of the total circulating supply. Hot supply represents between 3.5% and 11.3% of the total supply and can substantially impact Bitcoin’s price.
However, with ongoing developments in regulation and institutional interest, the future of Bitcoin remains an exciting space to watch.
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