Demand for the flagship cryptocurrency Bitcoin ($BTC) is currently “growing at an unprecedented pace,” at a time in which the supply of Bitcoin held on cryptocurrency exchanges has dwindled to record lows, suggesting a potential supply shock that could drive prices higher could soon occur.

According to Julio Moreno, Head of Research at cryptocurrency analytics firm CryptoQuant, demand for the flagship cryptocurrency “has become more important than supply” and, according to the firm’s data, demand for BTC from permanent holders has for the first time ever outpaced issuance.

Data from CryptoQuant shows that known exchange addresses now hold roughly 1.94 million BTC, a figure that represents a mere 9.8% of Bitcoin’s total circulating supply of around 19.67 million coins.

These exchange reserves have been steadily declining from a peak of 2.85 million BTC seen in July 2021, with the diminishing supply on exchanges suggesting that investors are increasingly taking a long-term holding strategy rather than being actively trading.

It’s worth pointing out that a lower supply on exchanges could lead to a potential supply shock if demand is to suddenly surge. A supply shock occurs when the readily available supply of an asset on exchanges abruptly drops while demand increases.

The buying pressure ensuring from the supply shock leads to a price rise, which can often be compounded as short sellers are forced to add to their positions to avoid liquidation, or by forced liquidations themselves.

Bitcoin’s potential for a supply shock is further compounded by its upcoming halving event, which will see the coinbase reward miners receive per block found on the network get cut in half to 3.125 BTC, effectively halving the supply of newly minted BTC entering the market.

The upcoming halving event is expected to occur on April 20, with these events being programmed into the cryptocurrency’s monetary policy to occur once every 210,000 blocks, meaning once every four years.

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