Crypto exchanges have witnessed significant shifts in recent years, marked by growing crypto adoption and evolving investor behaviour.
One notable trend is the declining Bitcoin (BTC) balances on exchanges. According to Stocklytics.com, Bitcoin balances have plummeted to a five-year low of just over 2.3 million BTC.
Roughly $10 billion worth of BTC has been withdrawn by Q1’24, signalling a potential supply squeeze for Bitcoin users. This development reflects a complex interplay of factors influencing how investors manage their digital assets.
As Stocklytics financial analyst Edith Reads observes, “The U.S. spot Bitcoin ETFs have been trading for less than three months, but in that time, Bitcoin withdrawals have significantly augmented.
“The significant outflow in Bitcoin is a testament to how investors increasingly opt to trade in ETFs using brokerage accounts rather than holding the asset directly on exchanges.”
Bitcoin balances in crypto exchanges
According to exchange info tracked by Stocklytics, BTC balances have been at their lowest point since April 2018, a considerable drop of 0.9 million from the exchanges’ peak in 2020.
On March 27 alone, withdrawals cumulated to more than 22,000 BTC, about $1.54 billion, marking the third-largest daily tally of 2024.
Over $40 million has been withdrawn from Bittrex accounts since May 2023, including a notable $150 million from Binance. With less than 3 million coins in active circulation, the withdrawal trend hints at a possible supply crunch in the next 6 to 12 months.
In the recently concluded halving event, Bitcoin miners extracted only 3.125 BTC per newly mined block, causing the BTC issuance rate to drop below the gold mining rate of approximately 2.3%. This has bolstered the narrative of Bitcoin as a scarcer and potentially more valuable asset. Following the halving event, BTC prices may rise.
However, the true profitability of crypto exchanges will depend on whether investors choose to keep their BTC on these exchanges or withdraw them to private wallets, a factor that could exacerbate the supply crunch.
Why are crypto exchanges less appealing for investors?
Following the FTX collapse, investors have grown considerably wary of crypto exchanges. The stacked balance metric from Glassnode confirms that a significant portion of the decline came from FTX, with multiple crypto users embracing contagion fears across the Bitcoin market. Besides, with the persistent market volatility, investors opt to play it safe and take up spot ETFs to gain exposure to the current bitcoin price without buying the asset.
The prevailing hacks and scams among crypto exchanges only intensify apprehensions among investors who will likely hold onto their Bitcoin and consider other exchange alternatives.
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