Throughout February, Bitcoin prices showed little realistic expectation of a trend reversal from its overtly bearish structure. However, the flagship cryptocurrency has recently seen slight buying momentum despite the ongoing conflict between the US and Iran, which could signal a short-term rebound. However, recent on-chain analysis data reveals a contrary view to this speculation.
Illiquid supply dominates Bitcoin market
In its latest Quicktake post on CryptoQuant, analytics group Arab Chain highlights that the liquid supply of Bitcoin on the Binance exchange has recently increased significantly. This post is based on data obtained from BTC Binance’s liquidity and illiquidity supply model. For context, this metric measures how easily the amount of Bitcoin held on Binance is easily tradable (liquidity) compared to the amount of inactive Bitcoin on the exchange (illiquidity).
In a post, Arab Chain revealed that Binance currently holds a total of approximately 670,000 BTC in reserves. Of this, approximately 83,000 BTC is in liquid supply and approximately 587,000 BTC is in non-liquid supply, resulting in a liquidity ratio of approximately 12%. It is also noteworthy that the current liquid supply portion is close to levels last seen in 2024.
Nevertheless, this increase in liquid supply still fits within the broader story. This means that Binance’s Bitcoin reserves remain overwhelmingly illiquid. Analysts explain that this behavior, where illiquidity outweighs liquidity, is often associated with less active holdings, or relatively long-term positions, even when held on Binance.
Since illiquid supply is disproportionately higher than liquid supply, there is a trade-off between expected selling pressure and stationary hands. According to Arab Chain, this existing stability is primarily due to the fact that the amount of readily available Bitcoin pales in comparison to the total amount of BTC on the platform.
Increased liquid supply signals stronger market readiness
However, Binance’s e-liquid supply remains steadily increasing, recently reaching 2024 levels. As Arab Chain points out, liquid supplies are more responsive to speculative activity and tend to expand in parallel with trading activity. Conversely, when markets enter periods of calm or repositioning, liquid supplies often contract.
Therefore, while this does not directly indicate bearish intent, the current increase in liquid supply to 2024 levels suggests that Bitcoin traders are bracing for impending volatility. It could also mean that investors are reallocating positions or positions in anticipation of future price movements.
If selling pressure increases following this increase in liquid supply, it could be a signal to expect subsequent distributions. On the other hand, Bitcoin price could continue its recovery journey if demand absorbs the additional supply currently flowing into the market. At the time of writing, Bitcoin is trading at $67,604, reflecting an increase of 2.97% in 24 hours.
Featured image from Unsplash, chart from Tradingview
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