Why Are BTC Exchange Balances Decreasing?

January 11, 2021 02:16 PM
Crytpo and Bitcoin Market Cap Story of Day

Crytpo and Bitcoin Market Cap Story of Day





Crypto is seeing its first meaningful sell-off since making a string of new all-time highs, with the majority of the Top 10 down in excess of 15%. Spot volumes are heightened on the move, but not surpassing levels seen last week.

Crypto Story of the Day

One of the defining data points of this bitcoin (BTC) rally has been falling BTC exchange balances. Despite the asset reaching new all-time highs above USD 40,000, BTC blockchain data shows the metric has not reserved course, suggesting that traders aren’t inclined to take profits by returning BTC to trade venues to sell.  

In February 2020, the aggregate BTC balance of major exchanges including Bitfinex, Coinbase, Kraken, Huobi, Bitstamp, and others, began to drop. The drop ended a trend that has persisted since BTC trading on exchanges began in 2012/2013. On February 15, 2020, the collective BTC balance on these exchanges stood at 2.97 million, while as of Saturday the balance equaled 2.33 million. Put differently, in February, 16% of the total BTC supply was held on major exchanges and has since fallen to 12%. 

Bitfinex has been experiencing a drop in BTC balances since December 2018, at which point it held a high of 2.16% of all BTC in circulation, compared to a current 0.5%. In absolute terms, Bitfinex now holds 91,299 BTC, compared to 377,699 in December 2018. 

Finally, Coinbase, which held the highest BTC balance of 982,061 in February 2020, or 5.45% of the total supply, has also seen a fall in the metric to 826,680 or 4.4%, as of Saturday. Binance is a notable exception, seeing an inflow of BTC, however, being a crypto-only exchange, clients use the platform to trade among cryptos rather than convert to or from fiat currencies.

The dynamic of decreasing BTC exchange balances gives credence to the notion that investors are less interested in actively trading BTC but would rather custody the asset themselves for extended durations. The dynamic, however, is also likely supported by the proliferation of self-managed wallet solutions, such as Ledger’s hardware wallets, that have made custodying BTC more accessible to a wider range of investors. With almost every BTC investor up, holders are, nonetheless, continuing to defer profit-taking. We would argue that the dynamic underscores the buy-and-hold nature of the current rally. 

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About the Author

FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets. You can subscribe to FRNT Financial Morning Note at https://www.frnt.io/morningnote