Bitcoin supply hits a seven-year low—will the price rise significantly?

The holdings of Bitcoin exchanges have just dropped to the lowest point in 7 years, while the spot trading volume continues to rise.
Is BTC preparing for a breakthrough that only a few are anticipating?
Despite the price fluctuations, the bullish sentiment for Bitcoin [BTC] remains clear. In fact, the recent market trends may be beginning to validate this viewpoint.

Strategically, bulls triggered a $40 million short liquidation near $104,984, pushing BTC back up to $107,000, with an intraday rise of 1.17% as of the time of writing.

However, this liquidity sweep is not a fleeting moment. In June alone, the exchange's Bitcoin balance dropped from 3.09 million coins to 2.8 million coins, a decrease of nearly 9.4% in just one month.

In fact, this reduction has caused the amount of BTC held by exchanges to account for only 14% of the total circulating supply - the lowest level since 2017.

Historically, a structural decline in liquid supply often precedes severe supply imbalances, especially when demand is stable or rising.

In short, if demand (reflected in the continuously declining exchange balances) continues to exceed available liquidity, and investors reduce risk, deleverage, or move capital elsewhere, then the cost basis for each Bitcoin may face a significant rise in repricing.

This is the classic mechanical setup of supply tightening. Currently, 86% of BTC is traded over-the-counter, and the current low volatility range may be the consolidation phase before a breakout.

However, according to AMBCrypto, a key catalyst is essential to ignite this potential rebound.

Track the source of Bitcoin price fluctuations.
Before interpreting the current indicators as completely bullish, it is necessary to assess the actual flow of liquidity.

Historically, the rise in the ratio of spot to derivatives trading volume indicates an increase in organic demand. However, if the derivatives market begins to absorb liquidity, it may trigger larger false breakouts.

At the time of writing, CryptoQuant's Bitcoin trading volume ratio (spot to derivatives) has flipped upward, reaching a monthly high after bottoming out at 0.05 (the lowest level in seven months) at the end of May.

It is worth noting that, as shown in the figure below, Bitcoin has reached an all-time high in a low ratio environment, emphasizing that this trend is mainly driven by derivatives, with very low spot participation.

Therefore, once BTC broke through the psychological barrier of $111,000, it triggered a wave of liquidations. Over-leveraged long positions were liquidated, and Bitcoin fell back below $100,000 with almost no resistance.

However, a critical structural change may be occurring now.

The spot trading volume has climbed, and as the supply held by exchanges is at a 7-year low, the market may be shifting from speculation to demand constrained by supply.

If this divergence continues, Bitcoin may be on the brink of a typical supply squeeze and could lay the groundwork for a high momentum breakout.