Definition ∞ A liquid supply squeeze occurs when the readily available supply of a digital asset on exchanges or in easily accessible wallets significantly diminishes, while demand remains constant or increases. This reduction in liquid supply, often driven by long-term holding or staking, can lead to upward price pressure as buyers compete for fewer available units. Such a squeeze indicates strong holding sentiment and limited selling interest from market participants. It is a condition where market liquidity becomes constrained.
Context ∞ The phenomenon of a liquid supply squeeze is a closely watched metric in cryptocurrency markets, often preceding significant price appreciation for an asset. On-chain data analysis frequently tracks the movement of assets off exchanges into cold storage or staking protocols to identify potential squeezes. Understanding these supply constraints is critical for anticipating market movements and assessing an asset’s short-to-medium term price potential.
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