Definition ∞ Supply shock formation describes a market condition where the available circulating supply of a digital asset significantly diminishes relative to increasing demand. This scarcity can be driven by factors such as reduced mining rewards, large-scale accumulation by long-term holders, or assets being locked in decentralized finance protocols. When demand outpaces the available supply, it creates upward pressure on the asset’s price. This imbalance often leads to rapid price appreciation.
Context ∞ News frequently reports on supply shock formation as a catalyst for significant price rallies in the cryptocurrency market. Events like Bitcoin halvings or major protocol upgrades that lock up large amounts of ETH are often cited as drivers of supply shocks. Analysts closely monitor on-chain metrics related to exchange reserves and long-term holder supply to anticipate such formations and their potential market impact. This helps predict market shifts.
Blockchain Knowledge
Cryptocurrency Foundation
Cryptospace Newsfeed
