Throughout the month of February, Bitcoin price barely showed any real hopes of a trend reversal from its bearish structure. However, in the last day, the flagship cryptocurrency witnessed a small amount of buying momentum, which could indicate a short-term return to the inbound despite the ongoing conflict between the US and Iran. However, data from a recent analysis of the chain revealed a contrary perspective to these assumptions.
Illiquid supply dominates the Bitcoin market
In the latest Quicktake post on CryptoQuant, an analytical group, Arab Chain highlights that the liquid supply of Bitcoin on the Binance exchange has recently increased significantly. This post is based on information derived from BTC Binance Liquid Vs Liquid Supply Model. For context, this metric measures how much Bitcoin is held on Binance, compared to the amount held on an exchange that is inactive or held for a long time (illiquid).
Arab Chain reveals in this post that Binance currently has around 670,000 BTC in its reserves. Of this amount, approximately 83,000 BTC are available as liquid supply and approximately 587,000 BTC are available as illiquid supply, leaving a liquidity ratio of approximately 12%. It should also be noted that the current portion of the liquid supply is close to the levels last seen in 2024.
However, this rise in liquid supply is still part of a larger story: Binance’s Bitcoin reserves remain incredibly illiquid. The analyst explains that this behavior, where liquidity is higher than liquidity, is often associated with less active assets or relatively long-term positions, even when they are held on Binance.
Because liquid supply is disproportionately greater than liquid supply, there is a balance between expected selling pressure and non-moving hands. This current stability, according to Arab Chain, is mainly due to the fact that the available amount of Bitcoin is decreasing compared to the total amount of BTC on the platform.
Increase in liquid supply due to increase in market readiness
However, it remains that the liquid supply on Binance is steadily increasing, as it recently reached the level of 2024. As Arab Chain points out, liquid supply is more reactive to speculative activity and tends to go along with trading activity. Conversely, the supply of liquidity often decreases as the market enters periods of calm or settling.
Therefore, while this is not a direct signal of bearish intent, the current increase in liquid supply to the 2024 level suggests that Bitcoin traders are preparing for the inevitable volatility. It can also mean that investors reallocate their positions or positions in anticipation of future price movements.
If this rise in liquid supply is accompanied by increased selling pressure, this could be a signal to expect further distribution. On the other hand, if demand were to absorb the additional supply that is currently entering the market, the price of Bitcoin could continue on its recovery journey. At press time, Bitcoin is trading at $67,604, reflecting a 2.97% gain in 24 hours.
Featured image from Unsplash, chart from Tradingview
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