Exchange Supply Squeeze

Definition ∞ An exchange supply squeeze describes a market condition where the amount of a particular digital asset available for sale on exchanges becomes critically low. This scarcity arises from a combination of strong buying pressure and assets being moved into long-term storage, reducing the liquid supply. A severe supply squeeze can lead to rapid price increases as demand significantly outstrips available supply. It reflects a significant imbalance between buyers and sellers.
Context ∞ News reports often highlight an “exchange supply squeeze” as a key factor driving upward price movements for cryptocurrencies like Bitcoin. Analysts monitor exchange reserves to identify these conditions, which can precede significant rallies. The phenomenon underscores the importance of on-chain supply dynamics in predicting market behavior, as reduced liquidity can amplify price volatility.