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Investors are taking their Bitcoin off exchanges: Here's what that...DownloadSubscribe

Investors are taking their Bitcoin off exchanges: Here's what that means

Investors are taking their Bitcoin off exchanges in near-record amounts, which is good for everyone in crypto. This article will explain why.

The first section shows a few Bitcoin graphs and covers some data which shows how much Bitcoin is being withdrawn from exchanges. The second section explains Bitcoin supply shock and why this matters, and the third section shows where the information is coming from.


    What’s Happening - BTC taken off exchanges

    Although having a transparent network has its disadvantages, one of the advantages of Bitcoin is that we can see where the coins are. For example, we know the BTC addresses for most of the major exchanges around the world. By following the flow of funds to and from these addresses we can keep track of how much Bitcoin is on exchanges.

    Right now the data is telling us that investors are withdrawing their Bitcoin from exchanges, decreasing the liquid supply (the float) of BTC.

    The blockchain analytics company Glassnode studio is the best source of information. They actively track all sorts of interesting stats such as:

    • Number of new addresses
    • Number of active addresses
    • BTC currently held on exchanges
    • Total addresses
    • Gas fees
    • And much more...

    Bitcoin supply crunch
    BTC on exchanges, chart courtesy of Glassnode studio

    According to Glassnode studio, there are now less than 2.4 million Bitcoins on exchanges. Given that Bitcoin’s total supply is currently 18.6 million coins, only 13% of all BTC in existence is on an exchange. The amount of BTC on exchanges has been steadily falling since Q1 of 2020, and has now reached a 2.5 year low.

    Another interpretation of the same data is to look at a chart showing the liquid supply of BTC. That is, the amount of BTC that’s available for purchase at any given time. Recently the Bitcoin trader Willy Woo tweeted out this chart.

    Bullish lack of liquidity for BTC
    Willy Woo’s chart showing the liquid supply of BTC 

    The chart shows that the liquid supply of BTC is at its lowest point in four years. A lot of BTC is coming off of exchanges and into private wallets.

    We can even see individual examples, like this transaction where a whale withdrew 14,982 BTC from Coinbase. That’s about half a billion dollars worth of BTC at current prices… Not bad!


    Why it Matters - Bitcoin supply shock

    Institutional investors and professional traders keep their Bitcoin on an exchange so they can sell at a moment’s notice. If a wealthy investor or large institution is planning to hold Bitcoin for the long term, there’s no reason for that person or organization to keep their coins on an exchange.

    When a lot of Bitcoin starts coming off exchanges it tells us that people are investing on a longer time horizon. Such a long term investment benefits every Bitcoin holder, since it means more hodlers than sellers.

    This lack of Bitcoin supply on the exchanges increases the chance that the next price move to the upside will take BTC that much higher. If demand for BTC is growing, and there is reduced supply on the market, people will have to pay more to acquire those coins.

    Besides the effect on price, having less Bitcoin on exchanges is good for the network as a whole. Exchanges get hacked all of the time. Anyone who keeps their Bitcoin on an exchange risks losing it, which harms the cryptocurrency ecosystem. As more people move their Bitcoin to private wallets, the Bitcoin network becomes more secure.

    The safest way to store BTC is with a non-custodial wallet like Exodus. With Exodus, you’re the only person who ever has access to your crypto. Nobody can freeze a transaction or take your coins away.

    That’s way different than crypto that people keep on PayPal or on an exchange. These centralized services can freeze an account or deny a withdrawal whenever they want.  To live up to the crypto ethos of being your own bank, you have to keep your crypto in your own wallet.

    Exodus best Bitcoin wallet BTC
    The Exodus Bitcoin wallet

    Where the Data is Coming from

    As we mentioned, a lot of the data for this article comes from Glassnode studio. One of the advantages of using this type of data is that it can give you an insight into where the market might be headed.

    While it’s impossible to speak with certainty about price action, on balance of probabilities we can say that,

    • If lots of Bitcoin is leaving exchanges, the price action is more likely to be positive in the future
    • If lots of Bitcoin is being sent to exchanges, there is a greater likelihood of negative price action in the future

      In conclusion, Glassnode Studio members can get access to all sorts of useful data by creating an account. In addition, Willy Woo has recommended several other sources of data for the crypto inquisitive.

    This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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