Bitcoin Supply Shock Incoming As Exchange Balances Take a Hit, Price Reacts

A Bitcoin supply shock is likely underway due to falling exchange balances. Bitcoin (BTC), the leading cryptocurrency, is moving from exchanges to exchange-traded fund (ETF) custody.

While declining exchange balances are typically seen as bullish, the BTC price is currently experiencing a downtrend. Bitcoin has fallen to the $115,000 levels and is struggling to regain momentum.

Bitcoin Exchange Balance Shrinks

Data from CryptoQuant indicates that since early 2023, the amount of Bitcoin in exchange reserves has steadily decreased. Notably, the BTC exchange balance dropped from over 3.2 million BTC to about 2.5 million as of August 2025.

According to CryptoQuant, BTC in exchanges is moving into the hands of long-term holders in the spot ETF market. This means that institutional holders absorb more BTC than miners produce.

This type of pattern usually indicates increasing long-term holder conviction. The massive imbalance between Bitcoin demand on exchanges and the ETF market suggests an imminent supply shock.

Typically, supply shock is seen when demand far exceeds the available supply. Lower BTC on exchanges can reduce immediate selling pressure, fueling scarcity while driving a further surge.

The increased BTC in the spot ETF market further proves the coin’s efficiency as a strategic asset for large investments.  Moreover, institutions like Strategy and Metaplanet are seen increasing their Bitcoin stash.

Historically, Bitcoin’s supply shock often drives a surge in its price. Although the market is already facing downtrends, the Bitcoin supply shock suggests a potential price reversal. It could push the asset to reach a new all-time high.

Analyst Take on Market Corrections

Crypto analyst Michael van de Poppe shared his opinion on the ongoing market dynamics. He emphasized that the market is correcting, pointing to great opportunities ahead.

The analyst further added that market shake-ups usually occur before real moves are seen. “Nothing goes up in a straight line on BTC & Altcoins,” says Van de Poppe.

According to the analyst, BTC could continue to plummet if it fails to break above $116,800. He, however, sees this level as important, as it could be the start of a bear market.

Van de Poppe thinks a low sweep might be the perfect buying signal amid bearish sentiments. He sees an imminent dip as just a discount for the next bull run.

At press time, Bitcoin price was traded at $115,147, down 2.8% over the past 24 hours. However, the trading volume surged 34.2% to $61.96 billion within the same period.

BTC.D MACD Cross, Implications

Amid the ongoing BTC price discussions, a crypto news channel on X, Crypto Banter, hinted at an altcoin season.

Crypto Banter noted a bearish MACD (Moving Average Convergence Divergence) cross on the Bitcoin Dominance (BTC.D) chart.

The chart suggests Bitcoin’s market share relative to the total crypto market may decline. This often indicates a potential shift in capital from BTC to altcoins, commonly referred to as altseason.

The BTC.D has broken below a descending trendline in the current cycle, similar to previous patterns seen between 2017 and 2021. At the time, the bearish MACD cross on BTC.D preceded altcoin rallies lasting several months.

The chart released by Crypto Banter showed BTC.D is testing below a multi-year uptrend, with support possibly around 50–55%. Also, resistance is noted near 64%, where prior peaks occurred.

This decline could signal the start of an altseason, where capital rotates from BTC into altcoins.

Historically, Bitcoin’s dominance dropping below 45% is a bearish sign for BTC holders. It often coincided with the painful drop in the BTC price.