Bitcoin prepares for volatility as spot supply dwindles.

Bitcoin (BTC) continues to rise, even as volume has dropped to its lowest level since the beginning of the 2023–2026 cycle. Retail investor activity is decreasing, and the funding rate in perpetual swap contracts has recently reached negative levels. This is an unusual context as the price approaches ATH.

However, on-chain data indicates a secret accumulation phase. While the market appears calm, supply is quietly diminishing. With open contracts in the Bitcoin futures market hovering near record levels. The market is tightening, setting the stage for an upcoming strong volatility.

The amount of BTC held on exchanges continues to fall

Even as demand for BTC, especially in the United States, continues to rise, the amount of Bitcoin held on centralized crypto exchanges tends to fall. Since the beginning of 2025, the balance has decreased by an additional 14%, down to just 2.5 million BTC, a level last recorded in August 2022.

This trend typically signals investor confidence and long-term holding behavior. BTC is being transferred to cold storage or custody wallets, reducing the available liquid supply for sale, which weakens short-term selling pressure.

Large entities often withdraw BTC after purchase, reinforcing the view that accumulation is taking place.

BTC reserves on exchanges | Source: CryptoQuant## OTC Bitcoin balance falls sharply

OTC exchanges, facilitating large off-exchange transactions, are also showing signs of tightening supply. Although they typically operate by connecting buyers and sellers, they still rely on the amount of BTC reserves to execute transactions quickly and reliably.

Currently, the reserve source is at a record low. According to CryptoQuant, OTC addresses related to miners have seen their balances decrease by 19% since January, now holding only 134,252 BTC.

This data aggregates the cash flow coming in from more than two separate addresses connected to mining pools, excluding the miners themselves and centralized exchange addresses.

Source: CryptoQuantWhen the liquidity of the exchange and OTC runs out, the available circulating money supply will decrease significantly. In a bull market, this momentum can amplify volatility as the demand for assets becomes increasingly scarce.

Funding rate slid to negative levels

In an environment of tight supply like this, even modest demand can cause prices to rise sharply, especially when the market is mispositioned. The funding rate situation clearly illustrates this. The funding rate is a periodic payment between traders buying and selling in perpetual contracts, reflecting the market's directional trend. A positive rate means that the Long side is paying the Short side, which is often a sign of bullish sentiment. A negative rate indicates the dominance of the Short side and usually signals a local correction.

However, when the funding rate is negative coinciding with the increase in BTC price, it is a different story. This indicates that although the Short side is dominating, the spot market is absorbing selling pressure, a potential sign of strong underlying demand.

This rare model has appeared three times in this cycle, each time triggering a strong subsequent price increase. The fourth case may have occurred recently: from June 6 to June 8, the funding rate turned negative while BTC surged from $104,000 to $110,000.

This move indicates that the price rally could continue, especially if short positions are liquidated, thereby pushing the price even higher.

The funding rate of BTC | Source: CryptoQuantThe Bitcoin market seems to be quiet at the moment. The shrinking liquidity supply suggests that Bitcoin is not rising due to excited investor sentiment or trading volume, but rather due to the disparity between the use of high leverage and actual spot demand.

In this setup, any forced liquidation or change in derivative products can trigger a explosive move, pushing BTC higher.

Vincent