Bitcoin (BTC) inflows over the past two quarters have sparked huge bullish sentiment in the market and increased activity around the leading cryptocurrency.
New on-chain data from cryptocurrency analytics firm CryptoQuant shows that Bitcoin supply on exchanges has declined sharply over the past four years. Since 2020, the amount of BTC held by users has fallen by almost 40%, indicating increased bullish momentum.
Historically, movement of assets outside of exchanges indicates a general bullish sentiment in the market, while an inflow into exchanges indicates a prevailing bearish sentiment.
This is because assets on exchanges are likely to be sold, unlike assets held at other depository institutions and mining reserves.
“More Bitcoins are being bought and held than mined, and this has been the prevailing trend since 2020. As we know with commodities, scarcity increases perceived value. The new trend suggests that we will not see a significant increase in supply towards the end of the cycle.”
Bitcoin offer on the stock market is now at its lowest level in five years, with several analysts pointing to a supply shock. According to recent data from Glassnode, the exchange supply stands at 2.3 million, while additional tokens, about 3 million assets, remain immobile in a decade.
Spot Bitcoin ETFs trigger an uptrend
The main reason for the market rally remains the approval of spot Bitcoin ETFs by the US Securities and Exchange Commission (SEC) on January 10th. The approval opened a new investment window for traditional financial players to increase their exposure to Bitcoin.
At press time, inflows into crypto investment products have topped $13 billion this year, with assets under management (AUM) rising to over $96.6 billion. Special, Bitcoin products have generated $12.8 billion year-to-date (YTD) with $76 billion in assets under management.
According to CoinShares, Bitcoin mutual funds recorded weekly inflows of $2.8 billion, signaling a continued uptrend despite minor sell-offs in recent days.
Analysts expect a halving
CryptoQuant cryptocurrency analysts suggest that the upcoming Bitcoin halving is another factor in the bullish outlook. The halving, widely viewed as a bullish event, is expected to take place in a few days, with miners bracing for a new reward price for the next four years.
In January, miners transferred over $1 billion worth of Bitcoin to exchanges as commentators pointed to the need to take profits after previous lows. Others suggested that the move to exchanges could be a hedge by miners to improve capacity, rather than an outright sell-off before the halving.
Also read: Spot Ethereum ETF: Grayscale includes stake in Ethereum ETF proposal
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