Bitcoin balances on crypto exchanges have dropped to a five-year low, amounting to just over 2.3 million BTC, a striking shift driven by growing crypto adoption and evolving investor behavior. As Stocklytics reports, this significant reduction, equating to roughly $10 billion worth of BTC by Q1 2024, could signal an impending supply squeeze for Bitcoin users.
Recently, Edith Reads, a financial analyst at Stocklytics, highlighted a key factor influencing this trend, "The U.S. spot Bitcoin ETFs have been trading for less than three months, but during this period, Bitcoin withdrawals have surged substantially. This outflow demonstrates that investors increasingly prefer trading ETFs through brokerage accounts instead of holding BTC directly on exchanges."
According to Stocklytics, Bitcoin balances on exchanges have reached their lowest point since April 2018, a decrease of 0.9 million BTC from the peak in 2020. On March 27 alone, withdrawals exceeded 22,000 BTC (approximately $1.54 billion), making it the third-largest daily tally of 2024. Notably, over $40 million has been withdrawn from Bittrex accounts since May 2023, including a significant $150 million from Binance. With fewer than 3 million BTC in active circulation, these withdrawals hint at a looming supply crunch within the next 6 to 12 months.
The recent halving event, which reduced Bitcoin block rewards to 3.125 BTC, has decreased the issuance rate below the gold mining rate of roughly 2.3%, reinforcing Bitcoin's narrative as a scarcer, potentially more valuable asset. Following the halving, BTC prices could rise further, though the true profitability of exchanges will hinge on whether investors continue to hold BTC on these platforms or withdraw them to private wallets, potentially exacerbating the supply shortage.
Why Are Crypto Exchanges Losing Appeal for Investors?
Investor wariness towards crypto exchanges has intensified, particularly since the FTX collapse. Glassnode's stacked balance metric shows that a significant portion of the decline in exchange balances originated from FTX, reflecting widespread contagion fears within the Bitcoin market. Amidst persistent market volatility, investors are opting for spot ETFs to gain exposure to Bitcoin prices without directly purchasing the asset.
Moreover, the recurrent hacks and scams plaguing crypto exchanges amplify investor apprehensions, prompting many to hold onto their Bitcoin and explore alternative exchange options. As the industry navigates these challenges, the trend of declining exchange balances may persist, underscoring a broader shift in how investors manage their digital assets.
Source: Stocklytics
