Definition ∞ Bitcoin supply absorption describes the market phenomenon where a significant portion of newly issued or previously liquid Bitcoin is acquired by long-term holders. This process indicates a reduction in the readily available supply on exchanges, suggesting accumulation rather than distribution. It reflects a growing conviction among investors to hold Bitcoin for extended periods. The absorption often precedes periods of price appreciation due to reduced selling pressure.
Context ∞ Analysts frequently discuss Bitcoin supply absorption as a key indicator of market strength and investor sentiment. Observing this metric helps assess the underlying demand structure and potential for future price movements. Periods of high absorption can signal a maturing asset class with decreasing speculative trading and increasing fundamental holding. The ongoing debate concerns whether current absorption rates indicate a sustained bullish trend or a temporary accumulation phase.
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