Supply Squeeze Potential

Definition ∞ Supply Squeeze Potential describes a market condition where a significant reduction in the available supply of an asset, combined with sustained or increasing demand, could lead to a rapid price increase. This situation often arises when a large portion of the asset is held by long-term investors or locked in various protocols. Identifying supply squeeze potential helps traders and investors anticipate periods of heightened price volatility. It is a key indicator of market dynamics.
Context ∞ In the cryptocurrency market, Supply Squeeze Potential is a frequently discussed concept, particularly for assets with limited circulating supplies or those extensively used in decentralized finance applications. Analysts often examine on-chain metrics like exchange reserves and staking rates to gauge this potential. A critical future development involves more sophisticated models that can accurately quantify the various factors contributing to an asset’s effective circulating supply, providing clearer signals for market participants.