On-chain data shows that the supply of Bitcoin on exchanges has hit a new low this year as investors continue to withdraw their coins.
Bitcoin Exchange Reserve has been on a downward trend recently.
As one analyst at CryptoQuant Quicktake explained, mailBitcoin exchange reserves have continued to decline recently. “Exchange reserves” here refers to an indicator that tracks the total amount of Bitcoin currently held in the wallets of all centralized exchanges.
When this metric is rising, it means that investors are currently depositing a net amount of tokens on these exchanges. Since one of the main reasons investors move their coins to exchanges is for selling purposes, this type of trend can lead to a bearish outcome for the asset’s price.
On the other hand, a downward trend in the index value indicates that Bitcoin holders are withdrawing their cryptocurrencies from exchanges. This trend could be bullish for the cryptocurrency as it means that investors are in an accumulation position.
Now, here is a chart showing the trend of Bitcoin exchange reserves since the beginning of 2024:
As shown in the chart above, Bitcoin exchange reserves have been declining throughout the year, meaning investors have been constantly transferring their coins to self-custody.
From the chart, it is clear that the particularly sharp downward movement in the index came as BTC fell below the $60,000 level, a possible sign that these coins that were withdrawn from exchanges were newly bought by their investors, who were looking to take advantage of the price drop.
The decline in Bitcoin exchange reserves over the past few months is naturally a positive development for the asset, as it means there are likely fewer coins to add to the selling pressure in the market.
But the bullish effect on the price is not the only benefit of the cryptocurrency here, as the overall downward trend in the metric indicates that supply is becoming less concentrated on these platforms.
Exchanges are centralized entities, and when investors deposit their coins into wallets linked to them, they lose real ownership over the coins (at least until they withdraw), as they are managed by the platform itself.
This means that any incidents that may occur to the exchange, whether it is a hack or something else, may also affect the assets of its users. And as the collapse of FTX in 2022 showed, large exchanges that are in a state of instability can also destabilize the entire market.
Therefore, the less supply these platforms hold, the less impact they have on the sector. From this perspective, the continued transfer of Bitcoin investors to self-custody is naturally a constructive development.
Bitcoin price
At the time of writing, Bitcoin is trading at around $59,800, down 2% over the past seven days.
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