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Bitcoin rally fuelled by shrinking supply

Digital generated image of Bitcoin sign stock market data on blue background.
Digital generated image of Bitcoin sign stock market data on blue background. (Andriy Onufriyenko via Getty Images)

Bitcoin closes in on the $38,000 (£30,000) mark, as the supply of the digital asset on exchanges drops to the lowest it has been in years at 5.38%.

The digital asset's (BTC-USD) supply scarcity has reached levels not seen since December 2017.

Read more: Crypto live prices

Exchange reserves have plummeted, according to onchain analysis firm Santiment.

"Bitcoin's supply on exchanges has continued moving into self-custody," Santiment posted on X.com. Holding digital assets in self-custody means investors taking their funds off exchanges and storing them in their own cold wallets. This makes the assets less liquid and suggests investors are holding them in anticipation of longer-term price appreciation.

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According to data from CryptoQuant, almost 478,000 bitcoin have been taken off exchanges and into self-custody in the past month. This is a drop of 19% since the beginning of November.

Read more: Spot bitcoin ETF approval unlikely this year, says analyst

Investors remove bitcoin from exchanges for two reasons: Lack of trust in centralised exchanges, like Binance and Coinbase (COIN). Or because they believe the price is going to go up.

The bitcoin price broke through the $38,000 mark earlier this week. Analysts see a battle between the bulls and the bears at this price mark. Many leveraged positions around this price range, both short and long positions, have been liquidated as the bitcoin price fluctuates around the $38,000 mark.

Investor and analyst Mike Alfred posted on X.com to discuss this "massive battle taking place at $38,000." Alfred suggests that if the bulls hold out and the price of bitcoin manages to climb through the mid-$38,000 range, then a price break-out to $48,000 is "inevitable". This is because short traders would face multiple margin calls, which would require them to deposit additional funds, potentially leading to increased upward pressure on the price of bitcoin.

"The bears are trying to hold bitcoin below it and prevent certain death and bankruptcy as a clean break of $38,000 leads inevitably to $48,000 then $150,000. The bulls can afford to bide their time as this close is just one day," he posted on X.com.

Bitcoin's seven-week rally

The world's largest digital asset by market cap has been on its current rally for almost seven weeks. Starting in earnest in the second week of October. The price of Bitcoin has gone up 130% since the beginning of the year.

Read more: US crypto crackdown 'an opportunity for the UK'

Crypto analysts are outlining their forecasts for bitcoin in 2024. PlanB, a crypto analyst, thinks the digital asset could spike as high as $65,000 shortly after the next halving. This is because the halving historically has led to an increase in the price of bitcoin.

The next halving event is scheduled for the spring of 2024. This is when the BTC reward for mining bitcoin gets reduced to half of its current amount of 6.25 bitcoins per block.

With the rate of new bitcoin creation reduced by half, there is less incoming supply of new bitcoins into the market. If demand remains constant or increases, this reduction in supply can put upward pressure on the price.

Watch: Moody's building AI model for compliance checks | The Crypto Mile

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