On-chain data shows the Bitcoin supply sitting on exchanges has reached a new low for the year as investors continue to withdraw their coins.
Bitcoin Exchange Reserve Has Been Riding A Downtrend Recently
As explained by an analyst in a CryptoQuant Quicktake post, the BTC Exchange Reserve has continued its drawdown recently. The “Exchange Reserve” here refers to an indicator that keeps track of the total amount of Bitcoin that’s currently sitting in the wallets of all centralized exchanges.
When the value of this metric goes up, it means the investors are depositing a net number of tokens to these platforms right now. As one of the main reasons why investors would transfer their coins to exchanges is for selling-related purposes, this kind of trend can lead to a bearish outcome for the asset’s price.
On the other hand, the indicator’s value heading in a downwards trajectory suggests the holders are withdrawing their BTC from the custody of the exchanges. Such a trend can be bullish for the cryptocurrency as it implies investors are in accumulation mode.
Now, here is a chart that shows the trend in the Bitcoin Exchange Reserve since the start of the year 2024:
As displayed in the above graph, the Bitcoin Exchange Reserve has been declining throughout the year, implying that investors have constantly been shifting their coins off into self-custody.
From the graph, it’s visible that a particularly sharp downwards move in the indicator has come as BTC has dropped under the $60,000 level, a potential sign that these coins taken off the exchanges were just freshly bought by their investors, who were looking to take advantage of the price dip.
The drawdown that the Bitcoin Exchange Reserve has been witnessing during the last few months is naturally a positive development for the asset, as it means there is possibly lesser coins that can add to the selling pressure in the market.
But the bullish effect on the price isn’t the only benefit for the cryptocurrency here, as the overall downtrend in the metric implies supply is becoming less concentrated on these platforms.
Exchanges are centralized entities and when investors deposit their coins into wallets associated with them, they lose real ownership over the coins (at least until they withdraw), with them coming under the management of the platform itself.
This means that any mishaps with the exchange, whether a hack or something else, also ends up affecting its users’ holdings. As the FTX collapse showed back in 2022, large exchanges going through destabilization can also destabilize the entire market.
Thus, the less the amount of the supply that these platforms hold, the less should their influence be on the sector. In this view, Bitcoin investors continuing to take their coins off into self-custody is naturally a constructive development.
BTC Price
At the time of writing, Bitcoin is floating around $59,800, down 2% over the last seven days.
Featured image from Dall-E, CryptoQuant.com, chart from TradingView.com