Bitcoin is navigating through a tough patch, with its price struggling to break the $100,000 barrier after a sharp dip earlier this week. Currently, Bitcoin is hovering slightly above $98,000, which indicates a nearly 10% drop from its peak of over $109,000 achieved last month.
Interestingly, the slowdown in Bitcoin’s price is mirrored by a similar trend in its exchange reserves, which have also been decreasing steadily.
Could Bitcoin Be Poised for a Bounce Back?
ShayanBTC, a contributor to the CryptoQuant QuickTae platform, shed light on this ongoing trend. In a post intriguingly titled “Bitcoin Exchange Reserves Plunge: Is Supply Shock Driving the Next Rally,” Shayan highlighted the potential for a positive shift for Bitcoin soon.
Shayan pointed out that the dwindling exchange reserves—the amount of Bitcoin held on trading platforms—are a clear sign that investors are gearing up for accumulation. What this means is that more investors are moving their Bitcoin off exchanges for long-term safekeeping, hinting at a sense of confidence in future gains.
This decrease in circulating supply can trigger what is known as a "supply shock," which could potentially drive prices higher in the upcoming weeks. “As seen in the chart, Bitcoin’s exchange reserves have been declining rapidly, indicating an accumulation phase by investors,” Shayan commented. They elaborated further:
“Since exchange reserves are a supply-side indicator, this ongoing drop might lead to significant price increases soon.”
"Bitcoin Exchange Reserves Plunge"
“ As seen in the chart, Bitcoin’s exchange reserves have been declining rapidly, signaling an accumulation phase by investors.” – By @ShayanBTC7
Read the full post 👇 pic.twitter.com/ntVY7AuDpD — CryptoQuant.com (@cryptoquant_com) February 6, 2025
The Coinbase Premium Hits a Neutral Zone
A deeper dive into another essential metric gives us more insight into Bitcoin’s potential path. The Coinbase Premium Index, which tracks the price difference between Bitcoin on Coinbase and other exchanges, has become an insightful tool for predicting market moves. This index often points to institutional investor activity, given that Coinbase is a major platform for such players.
When this premium is positive, it typically reflects strong buying interest on Coinbase, signaling institutional accumulation. Recently, the Coinbase Premium Index managed to surpass the critical “0” resistance level with considerable volume—a movement that traders are eagerly tracking.
TraderOasis, another analyst from CryptoQuant, emphasized that this breakout zone acts as both a support and resistance point, making it an intriguing area to watch.
If the premium remains positive, it could indicate ongoing institutional interest, possibly aiding in Bitcoin’s price recovery. However, if it fails to maintain itself at this level, it might suggest persistent bearish sentiment, possibly paving the way for further price drops.
Featured image created with DALL-E, Chart from TradingView
