A supply shock refers to a sudden and significant change in the availability of a product or asset, which can disrupt its market dynamics. In the context of cryptocurrencies, a supply shock often occurs when there is a rapid decrease in the circulating supply of a coin or token, leading to potential price volatility.
For example, in Bitcoin, a supply shock can happen during a “halving” event, where the reward for Bitcoin mining is reduced by half, decreasing the rate at which new Bitcoins are introduced into circulation. With reduced supply and constant or increasing demand, a supply shock often leads to upward price pressure.
Supply shocks are closely watched in crypto markets as they can significantly impact prices and investor sentiment.
