Throughout February, the Bitcoin price showed little real hope that the trend would change from its sharply bearish structure. However, the flagship cryptocurrency witnessed a moderate amount of buying momentum in the final days, which could hint at a short-term bounce despite the ongoing conflict between the US and Iran. However, recent on-chain analytics data suggests a contrary view.
Illiquid Supply Dominates the Bitcoin Market
In its latest Quicktake post on CryptoQuant, analytics group Arab Chain highlighted the recent significant increase in Bitcoin liquidity supply on the Binance exchange. This post relies on data obtained from the BTC Binance liquid vs. illiquid supply model. For context, this indicator measures how easily tradable (liquidity) the amount of Bitcoin held on Binance is compared to the amount on exchanges that are inactive or intended to be held for a long period of time (illiquidity).
Arab Chain stated in a post that Binance currently holds a total of approximately 670,000 BTC in its reserves. Of these, approximately 83,000 BTC exist in liquid supply and approximately 587,000 BTC exist in illiquid supply, resulting in a liquidity ratio of approximately 12%. It is also noteworthy that the current share of liquid supply is close to the 2024 level.
Nonetheless, this increase in liquidity provision still falls within a broader context. That said, Binance’s Bitcoin holdings are still overwhelmingly illiquid. The analyst explains that this behavior, where illiquidity outweighs liquidity, is often associated with less active holdings or relatively long-term positions, even when held on Binance.
Because illiquid supply is disproportionately higher than liquid supply, there is a balance between expected selling pressure and immobile hands. According to Arab Chain, this existing stability is mainly due to the fact that the amount of Bitcoin readily available is insufficient compared to the total amount of BTC on the platform.
Market readiness strengthens as rising liquid supply signals
However, Binance’s liquidity supply has been steadily increasing, recently reaching 2024 levels. As Arab Chain points out, liquidity supply is more responsive to speculative activity and tends to expand along with trading activity. Conversely, liquidity supply often decreases as markets enter periods of calm or repositioning.
So while this is not a direct signal of bearish intent, the current increase in liquidity supply to 2024 levels suggests that Bitcoin traders are bracing for impending volatility. This may also mean that investors are reallocating or repositioning their positions in anticipation of future price movements.
If selling pressure increases due to this increase in liquid supply, it could be a signal to expect follow-on distribution. On the other hand, if demand needs to absorb the additional supply currently entering the market, the Bitcoin price could continue its recovery process. At press time, Bitcoin is trading at $67,604, reflecting a gain of 2.97% in 24 hours.
Featured image from Unsplash, chart from Tradingview
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