On-chain data shows that the supply of Bitcoin on exchanges has fallen to just 6.4%, the lowest level in more than five years.
Bitcoin supply on exchanges has continued its downward trend lately
According to data from the on-chain analytics company saintRecently, investors have been moving their coins into self-holding. “Supply on Exchanges” is an indicator that measures the percentage of the total supply of Bitcoin that is currently in the wallets of all centralized exchanges.
When the value of this metric goes up, it means that a net number of coins are now entering these platforms. Since one of the main reasons why an investor deposits their coins on exchanges is for selling purposes, this type of trend can have downward effects on the asset in the short term.
On the other hand, low values of the index indicate that the holders are currently withdrawing their bitcoins from the exchanges. Such a trend, when it continues for a long time, can be a sign of accumulation from investors, and thus can be bearish for the value of the cryptocurrency.
Now, here is a chart showing the trend in Bitcoin supply on exchanges over the past few years:
The value of the metric seems to have been going down in recent days | Source: Santiment on Twitter
As shown in the chart above, the supply of Bitcoin on exchanges has been on a continuous downtrend for a few years now. This means that investors are constantly moving their coins from these centralized entities.
However, during the recent rally, the scale has been moving sideways instead as some investors have been depositing their coins into these platforms to sell them to take advantage of the profit-taking opportunity.
Recently, though, the index has resumed its downward trajectory once again. The likely reason behind this renewed decline in the metric is the FUD around the market that spread after the US Securities and Exchange Commission filed a lawsuit against Binance and Coinbase.
Users of these platforms made large withdrawals of Bitcoin, although the drop in reserves was more pronounced on Binance than on Coinbase.
While short-term changes in supply on exchanges can have direct effects on the price of an asset, a long-term view can have more complex significance for the market.
This years-old downward trend means that investors are making a steady push towards self-preservation. Keeping their coins away from a central save is a positive development for the original, as it spreads the supply over different entities, rather than locking it in with a few big players.
As events such as the bankruptcy of 3AC or the collapse of FTX have already shown, any destabilization of these large centralized platforms can also destabilize the entire market. If there are only a few coins stored on such platforms, their impact on the sector, and thus, any domino effect they cause, will also be small.
Back during Black Thursday of 2020, 16% of the total supply of Bitcoin was in the custody of centralized exchanges. Today, that value has decreased to just 6.4% of supply.
BTC price
At the time of writing, Bitcoin was trading at around $25,900, down 2% in the past week.
BTC has been stuck in consolidation during the last few days | Source: BTCUSD on TradingView
Featured image by Kanchanara on Unsplash.com, charts from TradingView.com, Santiment.net
