According to Glassnode, the proportion of total BTC held on exchanges has shrunk to approximately 12% of circulating supply. This is the lowest level in five years. Why is the proportion going down and what does this process signal? What does it affect? And are the coins moving somewhere else?
The process signals several key trends in the bitcoin market.
Firstly, the decline in the proportion of BTC on exchanges indicates that investors are opting to withdraw their coins to their own wallets for storage instead of holding them in hot wallets of exchange. This may be due to increased confidence in personal storage of cryptocurrencies and the desire to protect their assets from the risks associated with exchanges. That said, investigative trends are pushing investors away from exchanges.
Secondly, the decrease in BTC supply on exchanges may be partly due to inflows of spot BTC ETFs, which move large volumes of coins from exchanges into specialized cold wallets for long-term storage. This reduces the free float and can cause prices to rise due to shortages.
Thirdly, Bitcoin outflows from exchanges could signal a decline in speculative trading and short-term investing activity, and a shift toward longer-term holding of BTC as a safe-haven or store of value asset.
Overall, a decline in BTC exposure on exchanges can be read as a bullish signal as it limits the supply available for sale and demonstrates growing investor confidence in holding bitcoin over the long haul. This could fuel further price gains in the current bull market cycle.