Bitcoin’s (BTC) price has failed to reclaim the $28,000 in September so far, despite big guns like Microstrategy consolidating their positions with large purchases. On-chain analysis examines how the recent decline in BTC supply on exchanges could impact Bitcoin prices in October 2023 and beyond.
Bitcoin holders have increasingly moved their holdings from crypto exchanges into long-term storage this month. But rather than triggering a BTC price rally, on-chain market data has revealed a concerning trend.
Bitcoin Exchange Supply Has Dropped to Historic Lows.
Bitcoin price is down 13% from its H2 2023 peak of 31,500 recorded in July. However, recent macro events like the Bitcoin Spot ETF approval advances have driven institutional investors to accumulate Bitcoin.
Known to opt for safer self-custody storage options, recent accumulation made by large institutional investors has led to a significant drop in Bitcoin exchange supply.
As depicted below, only 5.83% of the total Bitcoin in circulation is currently deposited in crypto exchange-hosted wallets, the lowest since August 24.
The Percentage Supply on Exchanges metric tracks the portion of a cryptocurrency’s circulation supply that is currently deposited on crypto trading platforms.
Historically, BTC price has often rallied when exchange supply declines. But recently, a contrarian market trend has emerged as prices also trended downward in September.
Notably, the recent downtrend began barely a week after Grayscale scored a giant leap toward its Spot Bitcoin ETF approval. Since then, notable institutional investors have announced large Bitcoin purchases.
Microstrategy sold its own stock to purchase 5,445 BTC for $147.3 million. Arkham Intelligence also reported that Grayscale now holds BTC worth $16 billion in its Bitcoin Trust Holdings stashed across over 1,000 addresses.
Most whale investors often opt for cold storage options for enhanced security and internal controls. This appears to have contributed to the drop in BTC exchange supplies.
Bearish Sentiment Has Seen Trading Activity Drop Significantly
While Bitcoin whale investors have been stacking their bags, the prevailing bearish sentiment impacted trading activity negatively.
As shown below, Bitcoin’s daily trading volume stood at $29.4 billion on August 29. It has since entered a series of new lows, hitting $12.7 billion as of September 28. This represents a 57% decline in trading activity.
Typically, Spot Trading volumes decrease in bear markets as dissatisfied holders refrain from carrying out transactions. Hence, a decline in BTC spot volumes implies a drop in investor interest.
Historical data trends show that when trading volumes rise, and exchange reserves drop, Bitcoin price has often rallied. Evidently, this trend was visible around March 11 and June 21, 2023, respectively, as depicted in the chart above.
In conclusion, the buying pressure from the whales is unlikely to trigger a price rally unless there’s a significant increase in market demand.
However, with exchange supply nearing monthly lows, BTC is positioned to rally rapidly when market sentiment flips bullish.
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BTC Price Prediction: Bulls are In Prime Position to Target $30,000
From an on-chain perspective, the bulls could capitalize on the drop in Bitcoin Exchange Supply to force an upswing toward $30,000.
The Global In/Out of Money Around Price (GIOM) data, which depicts the entry price distribution of current BTC holders, also validates this prediction.
It shows that if Bitcoin can scale the initial resistance at $28,500, the low market supply could trigger a bounce toward $30,000.
As shown below, the 5.86 million addresses bought 2.64 million BTC at an average price of $28,576. If they book profits early, that sell wall could impede the rally.
But if the trading volumes increase significantly, the next BTC bull rally could surpass $30,000.
Conversely, the bears could invalidate the positive prediction if the Bitcoin price drops below $25,000. However, as shown below, 5.44 million addresses had bought 2 million BTC at the maximum price of $26,103.
If these addresses hold firm, they will likely prevent the bearish downswing.
But if the BTC price fails to hold that vital support level, a potential reversal toward $25,000 could be on the cards.
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