Bitcoin (BTC) Supply Shock Unlikely in 2025: Here’s Why

With Bitcoin’s growing presence in mainstream financial systems and speculation surrounding a strategic US BTC reserve, some experts predict a major supply shock during this cycle, which could disrupt the 4-year cycle theory with a extraordinary price growth.

However, a new report indicates that this supply shock is unlikely to happen by 2025.

Bitcoin Long Term Holder (LTH) Supply Analysis

While Bitcoin’s halving, increased institutional interest and the introduction of spot BTC ETFs in the US have amplified discussions of constrained supply, detailed data suggests otherwise, according to a report by CEX.IO, shared with CryptoPotato. The combination of long-term holder (LTH) activity, ETF activity and evolving liquidity trends indicate a robust supply ecosystem capable of mitigating potential shocks.

The key to this assessment is the behavior of the LTH supply after the halving. Historically, halving events trigger a noticeable transition of coins from LTH to short-term holders (STH), thereby increasing market liquidity. In 2024 alone, LTH supply dominance fell by 9%, releasing 1.58 million BTC into the market.

With an average decline of 16% in LTH dominance seen during previous post-halving cycles, a projected transfer of 1.4 million BTC from LTH to STH is expected by 2025. The report explained that this ensures that increased demand from institutions or governments will likely be met. through substantial profit taking from LTH, tempering supply constraints.

ETF Dynamics, OTC Activity and Market Liquidity

ETF activity, often cited as a potential driver of supply shocks, also appears less impactful on closer examination. While domestic US Bitcoin ETFs accumulated more than 1.13 million BTC by 2024, much of this accumulation stemmed from cash-and-carry trades rather than direct directional investments. These arbitrage strategies, which rely on derivatives like CME futures, balance supply and demand without directly pressuring the spot markets.

Additionally, ETFs currently account for less than 4% of Bitcoin’s total trading volume, further reducing their ability to cause a systemic supply imbalance.

Market liquidity and foreign exchange reserves also play a crucial role, as detailed by CEX.IO. While Bitcoin reserves held by the exchange fell to record lows in 2024, withdrawals largely indicated transfers to cold storage rather than liquidation, reflecting long-term confidence.

Simultaneously, OTC platforms increased their holdings by more than 200,000 BTC, pointing to a redistribution of liquidity rather than a total drain. This diversification, together with stable daily transfer volumes, indicates a balanced and active market.

Finally, market depth metrics reveal an improvement in liquidity conditions. The growing resilience is shown by USD-denominated liquidity increasing by 61% in 2024 despite the reduction in BTC-denominated depth. With larger exchanges consolidating market share and US platforms increasing dominance, the liquidity landscape appears well-positioned to handle increased demand in 2025.

Together, these factors reinforce the conclusion that Bitcoin supply remains strong, making a major supply shock unlikely in the coming year. Instead, the report states that the market is poised for measured growth within the established 4-year cycle framework.

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