Bitcoin Exchange Reserves Plummet to Seven-Year Low as Hedge Funds Double Down

NAIROBI (CoinChapter.com)— Bitcoin exchange reserves have dropped to 2.35 million BTC, marking their lowest level since 2018. This tightening supply signals potential market shifts, according to CryptoQuant data.

This marked a stark contrast to Bitcoin’s valuation in June 2018, when the cryptocurrency traded just above $7,000.

Hedge Funds Buy the Dip

The declining exchange reserves reflect a surge in institutional interest, as hedge funds move to capitalize on Bitcoin’s recent dip. André Dragosch, head of research at Bitwise, highlighted this trend, citing an increase in hedge fund exposure to crypto assets.

In a Jan. 13 post on X, Dragosch pointed out that the correlation between hedge fund performance and Bitcoin prices had strengthened significantly, indicating sustained market engagement. This accumulation could be preparing the stage for a “supply shock”—a phenomenon where rising demand clashes with diminishing supply, historically pushing prices higher.

However, the bullish narrative is tempered by a lack of trading activity. Analysts argue that while supply constraints are building, trading momentum remains insufficient to sustain a breakout above the crucial $100,000 mark.

Thin Trading Volume Stalls Rally Prospects

Bitcoin’s low trading volume is casting doubts on its ability to break through resistance levels in the short term. Ryan Lee, chief analyst at Bitget Research, emphasized the gap between market sentiment and tangible trading activity.

“While the market shows signs of stabilization, daily volume trends indicate a lack of the momentum needed for a decisive move upward,” Lee told Cointelegraph. He added that reduced selling pressure suggests consolidation, though sustained trading interest remains a missing piece.

Data from Santiment revealed that trading volumes for major cryptocurrencies have dipped to levels last seen before the U.S. elections in Nov. 2024. The ongoing “trading paralysis,” as described by Santiment, has stalled market enthusiasm but could pave the way for rebounds once fear-driven selling subsides.

Long-Term Optimism Persists

Despite near-term hurdles, Bitcoin’s trajectory for the coming years remains promising. Analysts predict that by late 2025, Bitcoin could surpass $150,000, driven by macroeconomic trends such as a projected $20 trillion expansion in the global money supply. If realized, this liquidity boost could channel up to $2 trillion into Bitcoin investments, significantly lifting its valuation.

Institutional demand continues to support Bitcoin’s price. In Dec. 2024, U.S. spot Bitcoin exchange-traded funds (ETFs) purchased around 42,000 BTC, three times the monthly mining output.

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