Liquid supply reduction refers to a decrease in the amount of a cryptocurrency or digital asset readily available for trading on exchanges. This phenomenon occurs when assets are moved into long-term storage, staked, locked in decentralized finance protocols, or otherwise removed from active circulation. A reduced liquid supply can indicate strong holder conviction or anticipated price appreciation.
Context
News often reports on liquid supply reduction as a bullish market indicator, suggesting decreased selling pressure and potential for price increases. Analysts monitor on-chain data to track these movements, particularly for major digital assets. This metric is frequently cited in market commentary to explain price trends or investor sentiment.
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