Bitcoin Supply on Exchanges Drops to Loest Level Since December 2021 Signaling Lower ‘Drop-Off Risk’

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As a seasoned crypto investor with a few bear market cycles under my belt, I find the current state of Bitcoin’s supply on exchanges quite intriguing. The fact that it’s at its lowest level since December 2021, when we saw a similar price drop, is a bullish sign for me. Historically, limited BTC supply on exchanges has been associated with less “drop-off risk” for the crypto market as a whole.

With a almost 6% decrease in value over the past week, Bitcoin ($BTC), the leading digital currency, now trades below $67,000. Notably, statistics indicate that the amount of Bitcoin held on cryptocurrency exchanges is currently at its lowest point since late December 2021.

Based on information from Santiment, a cryptocurrency analytics firm, approximately 942,000 Bitcoins are currently held on exchanges. This figure is the lowest it has been since December 2021, when Bitcoin’s price was around $50,000 and the market experienced a significant downturn, leading to a low of $40,000. During this bearish trend, Bitcoin ultimately dropped below $16,000 following the collapse of FTX.

According to Santiment’s analysis of historical data, the risk of a significant decline in the cryptocurrency market may be reduced since Bitcoin’s supply up for sale is relatively limited.

Bitcoin’s stockpile on cryptocurrency exchanges has dipped to a record low last seen in December, 2021, with approximately 942,000 coins currently held. Conversely, Ethereum and Tether are witnessing a resurgence in their exchange balances. Generally, the crypto market experiences reduced risk when Bitcoin’s readily available supply for trading is diminished.

— Santiment (@santimentfeed) June 13, 2024

Despite the data indicating that Ethereum held on exchanges amounts to 17.98 million ETH, which is significantly lower than its previous peak of approximately 30 million ETH in May 2020, Tether’s USDt tokens on exchanges have also seen a sharp increase, reaching nearly 16 billion tokens, close to their all-time high of 16.95 billion.

When there is a greater amount of stablecoins available on cryptocurrency exchanges, it can indicate that investors are planning to purchase more tokens using these stablecoins. This situation might be considered optimistic because there is typically less Bitcoin in circulation on exchanges.

Significantly, the data indicates a rising demand for a market-neutral approach in the cryptocurrency sector. This trend is underscored by the fact that specialists have observed all-time high levels of short positions on Bitcoin futures.

The basis trade strategy involves investors taking advantage of price differences between Bitcoin’s spot and futures markets. By buying Bitcoin in the spot market and selling futures contracts at a higher price, traders can earn a profit while maintaining a neutral position in the market.

As a financial analyst, I’ve observed that the introduction of spot Bitcoin exchange-traded funds (ETFs) in the US market has significantly boosted the appeal of basis trading for investors. With these ETFs, I can gain exposure to Bitcoin’s price movements without having to own the digital asset itself. Simultaneously, the price difference between Bitcoin futures contracts and the spot market presents an intriguing arbitrage opportunity that I can capitalize on.

“Investors now have the ability to purchase an ETF and concurrently sell futures, earning a profit from the price gap between the two. This strategy, known as cash-and-carry, has grown more accessible due to the availability of ETFs that can be bought through authorized brokerages.”

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2024-06-14 01:38