Bitcoin Supply Drops 20-30% Since 2024 Amid Volatility Concerns

Bitcoin, the world's largest cryptocurrency by market capitalization, is currently facing a significant challenge due to a vanishing supply, which is signaling an impending volatility storm. Since 2024, the supply of Bitcoin has dropped by 20-30% on exchanges and OTC desks. This decline in supply is a result of several factors, including the halving event, which occurs approximately every four years and reduces the supply of new coins entering the market. The most recent halving event occurred in May 2020, and the next one is expected to take place in 2024. As the supply of new coins decreases, the existing supply becomes more scarce, which can drive up the price of Bitcoin.

On exchanges, popular amongst retailers, BTC reserves have declined over 21% from 3.2 million to 2.5 million BTC since early 2024. Another supply point for most institutions, OTC (Over-The-Counter) Desks, has also recorded a steady deficit. Over the same period, OTC BTC balance dropped from over 211K BTC to 135K BTC. This translated to a 36% decline, much steeper than the exchange reserve change. The steady supply drop could be construed as a bullish catalyst, especially with Strategy and Strategy-like copy-cats jumping on BTC. However, these figures, the OTC balance and exchange reserve, aren’t static and could receive new BTC inflows to replenish the supply from sellers.

Despite the potential for new inflows, the growing global liquidity could be another crucial catalyst for the asset. According to Jamie Coutts, Chief Crypto Analyst at Real Vision, BTC could explode if liquidity climbs higher. “While Bitcoin’s sensitivity to GLI moderates over time, for every extra 1% of liquidity added to the system, we should expect to see a >20% move in the price in Bitcoin.” Coutts highlighted that the global liquidity index (GLI) surged 2% in Q2 and may have influenced the 40% BTC recovery. The above liquidity-driven thesis was supported by Bitwise’s Andre Dragosch. He noted that the global money supply has hit a 3-year high and could fuel the BTC price.

However, the vanishing supply of Bitcoin is not the only factor contributing to the potential volatility storm. The cryptocurrency market is also facing increased regulatory scrutiny, which can add to the uncertainty and volatility. Governments around the world are grappling with how to regulate cryptocurrencies, and the lack of clarity on regulatory policies can cause market participants to become cautious, leading to increased volatility. In addition, the cryptocurrency market is highly speculative, with many investors buying and selling based on short-term price movements rather than fundamental analysis. This speculative behavior can exacerbate volatility, as sudden changes in sentiment can lead to sharp price movements.

The vanishing supply of Bitcoin, combined with increased regulatory scrutiny and speculative behavior, is creating a perfect storm for volatility in the cryptocurrency market. According to analysts' forecasts, the volatility in the Bitcoin market could increase significantly in the coming months as the supply continues to diminish. This could lead to sharp price movements, both up and down, as market participants react to changes in supply and demand. Investors should be prepared for increased volatility and should consider diversifying their portfolios to mitigate the risks associated with investing in Bitcoin.