Bitcoin’s Hot Supply Plummets 50% in Three Months – Bullish or Bearish?

Bitcoin’s Hot Supply Sees Significant Drop

Despite ongoing struggles in the cryptocurrency market, there are potential signs that Bitcoin could be gearing up for a recovery. One such indicator is its hot supply, which tracks BTC available for short-term trading.

According to on-chain analytics platform Glassnode, Bitcoin’s hot supply, representing BTC aged one week or less, has plunged 50% in the past three months. This drop has reduced the percentage of these newly moved bitcoins from 5.9% of the total circulating supply to just 2.8%.

A shrinking hot supply can carry both bullish and bearish implications. On the bullish side, fewer bitcoins actively traded could indicate increased holding behavior, market stability, or even a potential supply shock. When investors choose to hold instead of selling, it often reflects confidence in a future price surge.

Additionally, a reduced hot supply generally lowers market volatility, as fewer BTC transactions lead to more stable price action. This stability could create an environment for a gradual price recovery. However, for a supply shock to push prices higher, demand must remain strong—something the current market lacks.

Bullish or Bearish Signal?

While Bitcoin’s hot supply is dropping, Glassnode notes that demand has weakened compared to three or four months ago. This is evident in the 54% decline in Bitcoin inflows to exchanges, falling from 58,600 BTC per day to 26,900 BTC.

The decline in exchange inflows aligns with waning investor sentiment and capital outflows. Additionally, spot Bitcoin ETFs have seen some of their largest daily outflows in recent weeks, indicating low demand.

However, a potential shift may be emerging. Bitcoin ETFs have recorded three consecutive days of inflows, suggesting that demand could be rebounding. If this trend continues, the significant drop in hot supply might ultimately act as a bullish catalyst for Bitcoin’s price movement.

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