Rising Demand for Bitcoin and Ethereum Could Trigger Supply Crunch, Experts Predict

Rising Demand for Bitcoin and Ethereum Could Trigger Supply Crunch, Experts Predict

The increasing demand for Bitcoin and Ethereum is raising concerns about a potential supply crunch. Supplies of these leading cryptocurrencies on centralized exchanges have reached record lows, driven by the introduction of crypto-related spot exchange-traded funds (ETFs) in the United States.

Record Low Exchange Balances

Data from Glassnode reveals that Bitcoin balances on exchanges have dropped to 11.6%, the lowest level since December 2017. Ethereum balances have fallen even further, reaching 10.6%, the lowest point since October 2015.

Impact of Spot ETFs

Experts attribute these declining exchange balances to the Securities and Exchange Commission’s (SEC) approval of ETF products for Bitcoin and 19-b filings for Ethereum. HeyApollo data indicates that spot Bitcoin ETFs have accumulated 857,700 BTC, valued at $58.5 billion, in just five months. BlackRock’s IBIT ETF leads with around $20 billion in assets, followed by Fidelity’s FBTC, which holds approximately $11 billion.

Although spot Ethereum ETFs have not yet started trading, anticipation among investors has driven significant withdrawals. According to CryptoQuant data, 777,000 ETH, worth about $3 billion, have been pulled from exchanges since the SEC’s approval.

Influence of Ethereum Staking

The option to stake Ethereum has also contributed to its declining exchange balance. Nansen reports that 32.8 million ETH, or 27% of the total supply, are currently staked to support the network.

Potential for a Supply Crunch

If the trend of declining exchange balances continues, experts warn that the demand for Bitcoin and Ethereum could lead to a supply crunch. BTC Echo editor Leon Waidmaan recently advised investors to prepare for a potential “supply squeeze” and the possibility of “the next big move.”

Historically, when digital assets are withdrawn from exchanges, it indicates that investors intend to hold rather than sell, reflecting bullish sentiment and expectations of future growth. A supply squeeze could significantly impact prices by limiting the available supply, potentially leading to substantial price increases if current accumulation trends persist.