Liquid Supply Tightening

Definition ∞ Liquid Supply Tightening describes a market condition where the amount of a cryptocurrency readily available for trading significantly decreases. This reduction in available supply often results from assets being moved into long-term holding, staking, or locked within decentralized finance protocols. A tighter liquid supply can lead to increased price volatility and upward pressure if demand remains constant or rises. It indicates a shift in holder behavior towards long-term commitment.
Context ∞ Liquid supply tightening is a key indicator often discussed in crypto news as a precursor to potential price rallies. The current discussion involves analyzing on-chain data to quantify the precise amount of illiquid supply and its implications for market dynamics. A critical future development is the ability to differentiate between various forms of illiquidity, such as institutional custody versus individual staking, to gain a more granular understanding of market structure.