Bitcoin’s liquid supply has plunged by 30% over the past 18 months, driven by rising institutional accumulation and strategic off-exchange holdings, leading to what may become a demand-driven rally.
According to Sygnum Bank’s June 2025 Monthly Investment Outlook, over one million BTC have moved off centralized exchanges in the last year and a half. This rapid depletion of Bitcoin supply has raised new concerns about how long-term holding behavior and institutional flows may amplify Bitcoin’s next price breakout.
“Bitcoin’s fast-shrinking liquid supply is creating the conditions for demand shocks and upside volatility,” Sygnum Bank wrote in its report.
The dynamic paints a tightening market profile, with fewer coins readily available for trading even as demand channels multiply through exchange-traded funds (ETFs), state interest, and corporate treasury models.
One Million BTC Removed from Exchanges in 18 Months
On-chain data reveals a sharp decline in readily tradable Bitcoin. Sygnum’s report shows that 30% of the liquid Bitcoin supply has effectively been pulled off exchanges since late 2023.
This contraction amounts to roughly one million BTC. These withdrawals suggest holders especially large entities are opting for long-term cold storage over active speculation. In past cycles, similar behavior has preceded major rallies, as reduced liquidity often leads to heightened sensitivity to demand fluctuations.
ETF Inflows Fuel Institutional Accumulation
A major factor behind the Bitcoin supply shrink is the rise of institutional investment vehicles, particularly ETFs. These instruments allow pension funds, family offices, and asset managers to gain exposure to Bitcoin through traditional equity structures without direct custody complications.
Since the launch of multiple spot Bitcoin ETFs in early 2024, inflows have accelerated, pulling BTC into custodial frameworks where assets are removed from exchange circulation. These ETFs now manage tens of billions of dollars in BTC, effectively placing more coins into long-term vault-like holdings.
Sygnum’s report also notes that corporate treasury programs are playing a growing role, with more firms allocating BTC as a hedge against inflation and fiat currency depreciation.
State-Level Bitcoin Reserves: A New Catalyst?
In an unexpected development, three U.S. states have passed laws to establish Bitcoin reserves. New Hampshire’s reserve legislation has already been signed into law, with Texas reportedly on track to follow.
While none of these entities have disclosed active purchases yet, even the legislative intent has been enough to spur market speculation. Globally, this trend is gaining steam as well. Pakistan’s government and Reform UK, currently leading in Britain’s election polls, have both floated the idea of adding Bitcoin to their national reserves.
Such policies could inject large, sustained buying pressure into an already supply-constrained market if implemented.
Macroeconomic Backdrop Supports Bitcoin as a Hard Asset
Institutional interest isn’t occurring in a vacuum. Rising fiscal instability in the United States, a weakening dollar, and an ongoing selloff in Treasury markets are all fueling investor appetite for hard assets.
Sygnum identifies this macro environment as favorable for Bitcoin, particularly amid concerns over ballooning U.S. debt levels. As traditional safe havens like bonds lose appeal, Bitcoin is increasingly viewed as a viable alternative, especially in portfolios designed for long-term resilience.
Coinbase CEO Brian Armstrong added further urgency to the narrative this week, suggesting Bitcoin could challenge the U.S. dollar’s role if fiscal conditions don’t improve.
“I love Bitcoin, but a strong America is also super important for the world,” Armstrong wrote on X. “We need to get our finances under control.”
With U.S. national debt now reportedly exceeding $37 trillion, some market analysts argue that investor flight to alternative stores of value may accelerate in the coming quarters.
Market Dynamics Favor Upside Price Action
Beyond the shrinking supply, Bitcoin’s volatility profile has changed over the past three years. Sygnum’s report notes that upside volatility has consistently outpaced downside movement, a structural sign of a maturing market with growing depth and liquidity.
This suggests that, in tight supply conditions, demand shocks could result in exaggerated upward price movements rather than steep corrections.
Other market indicators support this thesis. On-chain activity is rising, and investor sentiment has sharply rebounded across the digital asset sector.
Conclusion: Institutional Tailwinds Meet Supply Scarcity
The Bitcoin supply shrink is a structural realignment of the BTC market. With institutional pipelines expanding through ETFs, corporate treasuries, and potentially even state governments, demand is no longer solely driven by retail sentiment or short-term trading patterns.
At the same time, the pool of readily available Bitcoin continues to contract. Combined, these forces of Bitcoin’s scarcity could precede a high-conviction, institution-led bull run. However, the timing and scale of such a rally will depend on continued policy clarity, macroeconomic triggers, and investor confidence in crypto’s long-term viability.
FAQs
Why has Bitcoin’s liquid supply dropped by 30%?
Over one million BTC have been moved off exchanges over the past 18 months, mainly due to rising institutional accumulation through ETFs and cold storage.
Are U.S. states really building Bitcoin reserves?
New Hampshire has passed legislation to establish Bitcoin reserves, and Texas is expected to follow. These plans have not yet resulted in actual BTC purchases.
What role are ETFs playing in Bitcoin’s market dynamics?
ETFs are enabling institutional capital to access Bitcoin without direct custody, which removes large amounts of BTC from exchange liquidity pools.
Could Bitcoin replace the U.S. dollar?
Coinbase CEO Brian Armstrong suggested this is possible if the U.S. doesn’t rein in its debt.
What does shrinking supply mean for BTC prices?
A reduced liquid supply can amplify price movements when demand rises, often leading to upside volatility in tight market conditions.
Glossary
Liquid Supply: The portion of Bitcoin actively available for trading on exchanges, as opposed to being held in long-term storage.
ETF (Exchange-Traded Fund): A regulated investment vehicle that tracks the price of an asset like Bitcoin, allowing traditional investors to gain exposure.
Cold Storage: A method of storing cryptocurrency offline to protect it from hacks or unauthorized access.
Volatility Profile: A measure of how much and in which direction an asset’s price tends to move over time.
On-Chain Activity: Transactions and interactions that occur directly on the blockchain, often used to assess user behavior and network health.
Sources
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