Bitcoin (BTC) Hot Supply Metric Has Dropped Sharply

On-chain data shows the Hot Supply metric has observed a sharp drop for Bitcoin recently. Here's what this could mean for the cryptocurrency.

On-chain data shows that the Hot Supply metric has observed a sharp drop for Bitcoin recently.

Bitcoin (BTC) has seen its "hot supply" decrease significantly in recent months, according to on-chain analytics firm Glassnode.

This portion of the BTC supply is considered its most liquid, with coins part of it last seeing a move within the past week. Hot Supply is an indicator that keeps track of the tokens in circulation.

Hot Supply Drops As Bitcoin Price Drops

According to the firm’s latest report, Hot Supply has seen a triple-digit decline in the past three months. In total, the metric has decreased by more than 50% in the past three months, going from a high of 5.9% to just 2.8%.

"This signals a sharp reduction in liquid BTC available for trade," Glassnode stated. Another indicator that would corroborate this trend is the Exchange Inflow, which measures the total amount of the asset that the investors are transferring to wallets attached with centralized exchanges.

Generally, the holders deposit their tokens to these platforms for selling-related purposes, so the Exchange Inflow can be considered as a gauge for the sell-side activity in the sector.

Here is a chart for the Bitcoin Exchange Inflow, which displays how the metric’s value has changed during the last couple of years for the various cohorts:

During the rally, the Bitcoin Exchange Inflow had a value of 58,600 BTC per day, meaning the exchanges were receiving deposits amounting to 58,600 tokens every day. Today, as the market activity has cooled off, the indicator has declined to 26,900 BTC per day. "Lower inflows indicate reduced sell-side activity but also weaker demand," explained the analytics firm.

The spot market isn’t the only one that has seen reduced trading activity, as Glassnode has pointed in another X post that the Futures Open Interest, a measure of the total amount of futures positions related to Bitcoin currently open on exchanges, has also witnessed a notable drawdown since the price all-time high (ATH).

The Bitcoin Futures Open Interest was at $57 billion at the ATH, but now its value has plunged to $37 billion, representing a drop of 35%. "This decline mirrors the contraction seen in on-chain liquidity, pointing to broader risk-off behavior," said the analytics firm.