How big is your iTunes folder? Are they mostly music?
If your library is mostly music, have you considered subscribing to iTunes Match ($24.99/year)? iTunes Match stores your entire music library (up to 100,000 songs anyway) on the iCloud without using your iCloud storage. As side benefits, your music will be upgraded to iTunes Store version and because your music is added to iCloud Music Library, they will be made available for HomePod and iOS devices without requiring you to manually sync.
If your library has lots of video, however, you may need to consider other options.
- iCloud Drive: This option requires turning on Desktop & Documents Folders, which will offload local storage with "Optimize Mac Storage" option turned on. The downside is that you have no control over which files get offloaded. And from time to time, you may encounter file not found type of errors as iTunes was not really made for iCloud (the bug may be fixed now but I have encountered some in the past).
- External Disk/USB Flash: This is my recommendation. The downside is that you will obviously need to plug in disk or flash drive. But what you get in return is significantly larger storage space.