Recent on-chain data shows that the Bitcoin supply on exchanges has decreased as holders have pushed towards self-custody.
As per data from Santiment, an on-chain analytics firm, only $29.2 billion worth of Bitcoins is left on exchanges now. Analysts say there are two indicators of relevance here: “the supply on exchanges” and the “supply outside of exchanges.”
The meaning of these indicators is pretty easy, as implied by their names; the supply on exchanges is the measure of the total amount of Bitcoin currently sitting in centralized exchange wallets. On the other hand, supply outside wallets is kept in self-custodial wallets.
One of the main reasons investors deposit to exchanges is for selling purposes, so the supply on exchanges can reflect Bitcoin’s available selling supply. Thus, whenever the value of this metric increases, there is a chance that the market’s selling pressure also increases, and Bitcoin observes a bearish impulse.
Similarly, if the value decreases, when the supply outside of exchanges rises, the price of Bitcoin could see a long-term bullish effect.
Previously, investors used to believe that a supply shock could brew in the market if the supply on exchanges sufficiently decreased. However, the market environment is more diverse these days, so exchanges play a minor role.
Nonetheless, their supply can still hold some importance for the market. The chart below shows the trend in the Bitcoin supply on exchanges and the supply outside these platforms over the past year.
It is clear from the graph above that the Bitcoin supply on exchanges has been going down for quite a while, suggesting that investors have constantly been taking out a net amount of coins off these platforms.
Notably, the most significant decline during the past year came soon after the collapse of the crypto exchange FTX. The incident forced investors to reconsider their trust in centralized platforms, spurting many to withdraw massive amounts to self-custodial wallets. The keys to these self-custodial wallets lie only with users.
While the price of the cryptocurrency has been moving sideways around $23,000 levels, the drawdown of the indicator has continued recently. Analysts suggest that it might signify that some new accumulation has occurred at this level.
As per Santiment, the supply of Bitcoin on exchanges has fallen to just 1.27 million Bitcoins. The supply outside of exchanges has naturally grown while this has happened and has hit a new all-time high of 18.12 million Bitcoins. This means that the Bitcoin supply outside exchanges is 14.26 times the supply inside these platforms. This dynamic could positively affect the cryptocurrency’s price over the coming months.