Bitcoin OTC Balances Decline, Raising Market Supply Questions

Bitcoin has experienced a challenging period recently, with its price consistently declining over the past several days. After failing to maintain its position above the six-figure mark, the leading cryptocurrency now trades below $97,000.

At the time of writing, BTC trades at a price of $96,939, marking a 0.8% decline in the past day and a 10.9% decrease from its peak established in January. This downturn comes amid several underlying factors that are also related to on-chain developments.

Bitcoin OTC Balances Decline: The Implications

One notable trend has been recently highlighted by CryptoQuant contributor Darkfost, concerning the sharp decline in Bitcoin’s over-the-counter (OTC) desk balance.

Notably, institutional players—such as hedge funds, governments, and large corporations—have traditionally relied on OTC desks to acquire Bitcoin without impacting the broader market.

However, Darkfost points out that since September 2021, the OTC balance has dropped from approximately 480,000 BTC to just 146,000 BTC as of now.

He notes that even after Bitcoin hit $100,000, the OTC desk balance continued to fall, reflecting steady demand. This declining balance raises questions about where these institutional buyers will source Bitcoin when the remaining OTC supply is depleted. The analyst added:

When this balance will be fully empty, all buying will have to occur directly on exchanges, which could significantly impact BTC’s price. By looking at the sell side liquidity inventory, we can observe that US exchanges currently hold almost 1M BTC. Miners could also sell their BTC via OTC, but their current balance is around 117k BTC, and not all miners rely on OTC transactions.

Miners and Hash Rate Trends

Darkfost also highlights another key market factor: miner capitulation. Mining activity, measured through indicators like the Hash Ribbons, provides valuable insight into the health of Bitcoin’s network.

The Hash Ribbons track hash rate fluctuations, and according to Darkfost, they have historically served as a reliable signal of market entry points.

While this indicator has only failed once—during the COVID-19 market shock—its current flashing suggests that miners might be capitulating. According to Darkfost, when miners struggle, they may sell off reserves, further influencing market supply and demand dynamics.

Featured image created with DALL-E, Chart from TradingView