Since Bitcoin’s price dropped by 50% from its all-time high in May, Bitcoin holders have been hanging their hopes on fresh on-chain analytics that shows the market might be nearing a bottom. This analysis comes in the form of a big surge in outflows of the cryptocurrency from exchanges.
While it’s too early to tell if the outflows will be sustained, the data shows that some traders are satisfied with the current price and have no intention of liquidating their bitcoin (BTC) on the exchanges. This big surge in outflows from cryptocurrency exchanges could be translated as traders moving their coins to wallets, custody or cold storage while awaiting a price rebound.
Crypto exchanges registered a net outflow of approximately 79.79k BTC on Monday, with represents a gain of approximately 360% in the last 24 hours and 187% in the last 30 days. The on-chain analytics website used is IntoTheBlock.com, a blockchain analytics firm tracks flow from 11 cryptocurrency exchanges including Binance, Coinbase and Kraken.
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Petr Kozyakov, co-founder and CEO at the global payment network Mercuryo told CoinDesk, “The outflow can best be described as multifaceted, bordering on HODLing and the use of the digital currency in decentralized finance.” To “HODL” is crypto-market slang for buy and hold.
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The number of bitcoins held in exchange wallets fell to a three-week low of 2.54 million from 2.56 million as net exchange flows are in the negative region.
Investors typically move coins from exchanges to wallets, taking out liquid supply from the market when they intend to buy and hold in anticipation of price rallies. Petr Kozyakov added, “Investors appear to be storing their assets in hardware wallets with anticipation that the current drop in price will balance out for new price runs toward and above its previous all-time high.”
Some investors take direct custody of Bitcoin and tokenize the coins on the Ethereum blockchain to earn extra yield. Tokenization refers to locking up bitcoin on Ethereum and issuing an equivalent number of tokens tied to Bitcoin’s price. The tokens can then be deposited in decentralized finance (DeFi) lending and borrowing protocols.
Petr Kozyakov stated, “With Bitcoin in DeFi, investors get to maximize their earnings amidst dwindling prices, a better option for many who prefer not to keep their assets idle. Data from the website, DeFi Pulse, shows total Bitcoin locked in smart contracts has grown from 94,000 in April to about 174,000 now. Such tokenization of Bitcoin on other networks is also a source for the reduction of supply in the market.
What it means
All things considered, the latest outflow of Bitcoin from centralized exchange paints a bullish picture. However, Jason Deane, an analyst at Quantum Economics, called for a cautious approach. He said, “The market is currently lacking direction, sentiment is mixed, and many metrics are reporting lower demand, so this traditionally bullish signal should be interpreted with caution and in the context of other indicators.”
Bitcoin is currently trading near a critical support zone of $30,000. The cryptocurrency is currently trading $34,600 representing a 5.22% gain for the day, following the news of El Salvador legitimatizing Bitcoin as a legal tender in the country. Prices fell by over 40% in May on environmental concerns and China’s regulatory crackdown.
While exchange outflows have picked up, demand from “whale” entities and institutions, seems to be picking up as MicroStrategy is looking to pick up another $500 million in BTC to add to their holdings. The supply held by entities holding 1,000 to 10,000 coins has increased by 35,000 BTC to 4.183 million this month, the tally remains below the May 24 high of 4.186 million. This data is gotten from Glassnode, another cryptocurrency on-chain analytics firm.
A persistent rise in supply held by whale entities or institutions may be needed to restore market confidence. The balance held by these large investors rose in tandem with the price throughout the bull run from October 2020 to April 2021.