Bitcoin’s demand has seen a notable decline, reaching its lowest levels of the year. Despite this drop, the cryptocurrency’s supply on exchanges remains relatively low, mitigating the risk of sharp price corrections. Here’s a closer look at the factors contributing to the decrease in Bitcoin’s demand and what it could mean for its future trajectory.
Since early August, Bitcoin (BTC) has been trading within a relatively narrow range of $56,000 to $62,000. This consolidation phase has seen the cryptocurrency struggle to break out of this zone, indicating market uncertainty or a period of stabilization. The price has not ventured beyond this range since August 8, suggesting a pause in significant price movements.
One major reason for this stagnation is the weakening demand for Bitcoin. According to Crypto Quant, Bitcoin’s demand peaked in April 2024, coinciding with the Bitcoin halving event. However, demand has since plummeted, hitting its lowest point of the year.
A significant factor behind Bitcoin’s reduced demand is the decline in inflows into spot Bitcoin exchange-traded funds (ETFs). In March 2024, as Bitcoin reached new all-time highs, daily purchases into Bitcoin ETFs averaged 12,500 BTC. However, this figure has since dropped drastically to just 1,300 BTC per day as of last week.
Total inflows into spot Bitcoin ETFs have remained below the $100 million mark since August 9, according to data from So Value. While these ETFs manage over $55 billion in net assets, the lack of buying activity is a major hurdle for increasing overall demand.
In addition to ETF activity, whale behavior has also shifted. Whale holdings, which represent large Bitcoin holders, have decreased significantly. From February 2024, the average whale holdings dropped from 6% to just 1% of the total Bitcoin supply. This represents the most rapid decline since February 2021, as reported by Crypto Quant.
Whales are crucial for supporting Bitcoin price growth, and their reduced stake indicates a bearish sentiment in the market. Santiment data corroborates this, showing a decline in the number of Bitcoin addresses holding between 1,000 and 10,000 BTC since March.
Despite the decrease in whale activity, long-term Bitcoin holders are increasing their positions. These investors have been accumulating Bitcoin at a rate of approximately 391,000 BTC per month. This trend suggests that while demand from large holders may be falling, dedicated long-term investors remain committed to Bitcoin.
The question remains whether Bitcoin will break out of its $56,000 to $62,000 range. Analysis of on-chain data reveals a challenging scenario. According to Into The Block, over 3 million addresses bought Bitcoin within this price range. For many of these new investors, the current price does not represent significant profits.
Should Bitcoin attempt to surpass $62,000, it could face substantial selling pressure from these investors eager to realize their gains. Technical indicators also cast doubt on a potential breakout. The Relative Strength Index (RSI) has remained relatively flat, showing no significant increase in buying momentum. Meanwhile, the Awesome Oscillator, which previously indicated an uptrend, now shows signs of a weakening trend with shorter histogram bars.
Despite the declining demand, the low supply of Bitcoin on exchanges offers some protection against sharp price drops. Crypto Quant reports that the Exchange Supply Ratio has been on a consistent decline over the past year. This reduced supply helps cushion the price from steep corrections, even in the face of lower demand.
In summary, while Bitcoin’s demand has decreased significantly recently, the low supply on exchanges provides some stability. The current range-bound trading suggests a period of consolidation, with potential for either a breakout or further stabilization depending on future market developments and investor behavior.
A finance graduate, Maheen Hernandez has been drawn to cryptocurrencies ever since Bitcoin first emerged in 2009. Nearly a decade later, Maheen is actively working to spread awareness about cryptocurrencies as well as their impact on the traditional currencies. Appreciate the work? Send a tip to: 0x75395Ea9a42d2742E8d0C798068DeF3590C5Faa5
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