A sustained decline in Bitcoin holdings on exchanges could support further price gains for the cryptocurrency, according to an analysis.

On October 13, CryptoQuant contributor Ray wrote that exchange-held Bitcoin stood at about 2.67 million BTC, down by roughly 130,000 coins from about 2.8 million BTC in February. Exchange balances have continued to fall this year despite high volatility in the digital-asset market.

A drop in exchange balances means less Bitcoin is available for immediate sale on the market. It also suggests investors may be moving the token into private wallets or custodial services outside exchanges.

Ray highlighted that exchange balances kept declining even as Bitcoin rebounded from its recent lows. That indicates the amount of Bitcoin available for trading has not increased alongside the price recovery.

"Exchange-held Bitcoin continued to decline even as the price recovered from its lows," Ray wrote. "That shows the supply available for actual trading is still shrinking even as the market recovers."

He added that if buying demand improves while exchange supply remains low, a supply-demand imbalance could emerge. That, in turn, could create conditions favorable to Bitcoin's long-term uptrend.

As of 8 p.m., Bitcoin was trading at $83,216, down 0.24% from a day earlier, according to CoinMarketCap.