Definition ∞ A supply shock precursor refers to an observable market condition or on-chain metric that indicates an impending reduction in the available supply of a digital asset relative to its demand. These signals often include a significant outflow of assets from exchanges, an increase in long-term holder accumulation, or a reduction in new asset issuance. Such conditions suggest that the selling pressure is diminishing while buying interest remains constant or grows. This imbalance can lead to a sharp price increase when demand outstrips the constrained supply.
Context ∞ Identifying a supply shock precursor is a highly anticipated event in cryptocurrency markets, frequently highlighted in news as a strong bullish signal. Analysts closely monitor various on-chain metrics, such as exchange supply ratios and dormant coin activity, to detect these early signs of diminishing sell-side pressure. The discussion often centers on the timing and magnitude of the potential price impact once a supply shock fully materializes. Recognizing these precursors provides valuable insight into an asset’s future price trajectory.
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