The number of Bitcoin held on centralized exchanges has been on a decline since late May, with approximately 2,000 BTC (worth roughly $66 million at a current market price of $33,000 per coin) flowing out of exchanges daily. Glassnode’s On-Chain report revealed that Bitcoin reserves on centralized exchanges have fallen back to levels not seen since April, the month that saw BTC blast to its all-time high of approximately $65,000.
According to research, during the bull run leading up to this peak, relentless depletion of exchange coin reserves was a key theme. Glassnode concludes that most of this BTC went to the Grayscale GBTC Trust or was accumulated by institutions, driving “a persistent net outflow from exchanges.”
However, when Bitcoin prices slumped by almost 50% in May, this trend reversed as FUD (Fear, Uncertainty and Doubt) news over carbon emissions and regulation fueled the market selloff. Coins were immediately sent to exchanges for liquidation but now, the net transfer volume has moved back into negative territory again as outflows increase. In the report, Glassnode stated, “On a 14-day moving average basis, the last two weeks in particular have seen a more positive return to exchange outflows, at a rate of 2,000 BTC per day.”
The report also noted that the proportion of on-chain transaction fees represented by exchange deposits declined to 14% dominance this past week, following a brief peak to around 17% in May. This indicates 2 things. Either more users are buying cryptocurrencies through decentralized exchanges as a result of government bans and regulations or the general demand for cryptocurrencies are reducing as a result of market volatility.
On-chain fees associated with withdrawals saw a notable bounce from 3.7% up to 5.4% this month, suggesting that more individuals are selling off their cryptocurrencies because there has been no significant change in transaction fee structures.
The fall in exchange reserves appears to have coincided with an uptick in capital flows to decentralized finance protocols over the past few months. This suggests that more and more people are using Decentralized Exchanges (DEXES) to use DeFi platforms to earn passive income while the market recovers. Data from DeFiLlama, reveals the total value locked has increased by 21% since June 26 as it climbed from $92 billion to $111 billion, currently earning passive income.
Glassnode’s data also revealed that Bitcoin’s hashrate is recovering, suggesting that offline miners have successfully relocated or re-established their hardware, recovering costs and likely reducing the risk of treasury liquidation sell-pressure. The hashrate has recovered from the peak-trough decline of 55% to around a 39% decline. Should this level hold and be representative, it would indicate that hash-power equivalent to around 29% of the affected hash-power as a result of China’s war against Bitcoin mining has come back online.
What to expect
On-chain analytics data gives us a clue as to what investor sentiments are in a way traditional finance was not able to do. All indications suggest that there is mass accumulation of Bitcoin daily. If this trend continues, Bitcoin should experience a supply shock that could propel the market back into its bull run as many analysts have predicted.