Large number of Bitcoins flow out of exchanges supply squeeze underway

• The ratio of Bitcoin on exchanges to its circulating supply has dropped to its lowest point since June 2019; traders have a bullish outlook on BTC price. 
• Transactions exceeding $1 million have increased on the Bitcoin network, constructive for a BTC price rally. 
• Institutions continue withdrawing capital from Bitcoin investment products, likely a negative long-term impact on BTC price.

BTC is rallying despite increasing institutional outflows for five consecutive weeks. Investors’ confidence in Bitcoin increased, and the price crossed $47,000 for the first time since mid-May. 

Bitcoin supply squeeze on exchanges set to trigger second leg of BTC bull run

The supply of Bitcoin on exchanges, as a percentage of the total supply, has dropped consistently since July 2021, based on Santiment data. Recently this ratio hit 13%, marking its lowest point since June 2019. A BTC sell-off on exchanges is less common when there is less supply available (supply squeeze). Therefore, traders and long-term investors now have a bullish outlook on BTC price. 

Old Bitcoins or BTC purchased and held in traders’ wallets for over a year remain dormant and support the bullish narrative. Spent output age bands (SOAB) demonstrate the dormancy of old coins. This indicator is a bundle of all spent outputs created within a specific age band.

Each line in the indicator represents the percentage of spent outputs created within the time period. Spent output age bands help determine whether the majority of traders exiting their positions are likely to trigger a sell-off. 

In the current Bitcoin market, traders de-risking by selling their Bitcoins have held the coins for less than six months. Overall, this implies old hands are not selling BTC on exchanges and supports the supply squeeze narrative. 

Bitcoin: Spent Output Age Bands

BTC transactions exceeding $1 million currently dominate the network. The surge in the dominance of large-scale transactions likely comes from the accumulation by old hands since these investors are dormant and resisting a sell-off. The rise in large-scale transactions supports the Bitcoin price rally and is set to trigger the second leg of Bitcoin’s bullrun.

Institutional activity opposes the narrative supported by on-chain metrics and indicators. Based on the Digital Asset Fund Flows Weekly report by CoinShares, an institutional asset manager, institutions accounted for over $26 million worth of Bitcoin outflow this week. This is the fifth consecutive outflow, and it has yet to dampen the leading crypto’s rally. 

In May and June 2021, institutions pulled a record $141 million worth of BTC from funds per week, over five times higher than the current outflow. Unless there is a significant spike in outflow, the price rally is likely to continue uninterrupted, as predicted by analysts. 

Plan B, an independent Bitcoin analyst, has a bullish outlook on Bitcoin and stands by his prediction of BTC closing above $47,000 in August.

 

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