Bitcoin: High demand, reduced supply – Only upwards from here?

• Bitcoin fund holdings exceeded levels seen during the peak 2021 bull market.
• Daily fund inflows increased significantly during February.

The total amount of Bitcoins [BTC] held by digital assets holdings such as trusts, ETFs, and funds hit the highest levels in history as institutional interest for the prized crypto asset continues to soar.

According to AMBCrypto’s scrutiny of Bytetree’s data, nearly 950,000 BTCs were locked up in these investment vehicles as of this writing, exceeding levels seen during the peak 2021 bull market.

Source: Bytetree

U.S. spot ETFs drive the change

The inflows accelerated in recent months, built on the frenzy around spot Bitcoin ETFs in the U.S. market.

As seen from the graph below, daily capital infusion started to surge around November last year.

After the spot ETFs were green-lighted last month, a sharp dip was observed, exacerbated by outflows from the Grayscale Bitcoin Trust [GBTC]

However, the outflows ebbed considerably in February, leading to a steady increase in daily inflows. In fact, more than 107K Bitcoins flew into funds on the 25th of February, the highest since March 2021.

Source: Bytetree

Why does this matter?

As more and more Bitcoins make their way to these funds and become immovable, this already scarce asset would become even scarcer.

With demand remaining high, this supply/demand dynamic would eventually force a price appreciation, cementing Bitcoin as a store of value asset.

This sentiment was echoed by popular on-chain analyst ted. He stated,

“Bitcoin demand currently outpaces new supply by more than three-fold… If this persists there’s only one way for price, and that is UP!”

There has been a spurt in Bitcoin getting withdrawn from centralized exchanges in recent weeks.

CryptoQuant data accessed by AMBCrypto showed a higher number of net outflows days than net inflows days in February.

Source: CryptoQuant

Read Bitcoin’s [BTC] Price Prediction 2024-25

The trend was observed alongside the rally which sent Bitcoin above $50,000, suggesting that users were accumulating and waiting for prices to shoot further.

The dominant market sentiment was one of greed, as per the latest reading of the Bitcoin Fear and Greed Index. This signaled a continuation of the accumulation spree and the possibility of a breakout over $52,000.