- Bitcoin exchange reserves hit a six-year low, dropping 34% since March 2022.
- Investors favor self-custody solutions post-FTX collapse and increased regulatory scrutiny.
- Steady decline in exchange reserves raises concerns about potential impacts on market liquidity.
The amount of Bitcoin (BTC) held on centralized cryptocurrency exchanges has plummeted to levels not seen since December 2017, marking a six-year low, as reported by on-chain data sourced from CryptoQuant.
The exchange reserve of the leading cryptocurrency hit its peak at 3.08 million on March 2, 2022. However, a sharp decline followed, and as of the latest data, only 2.01 million BTC remain on exchanges, reflecting a notable 34% decrease over the past three years.
The primary driver behind this dramatic decline appears to be the recent collapse of FTX and the broader upheaval within the cryptocurrency industry. Investors, rattled by the FTX debacle and heightened regulatory scrutiny, are now opting for a shift in strategy. Increasingly, they are choosing to take control of their assets, moving away from centralized platforms and embracing self-custody solutions.
This shift towards self-custody suggests a changing sentiment among investors who now view BTC as a long-term asset worthy of holding, rather than engaging in active trading.
As of the latest market update, BTC is trading at an 18-month high of $43,000. On-chain data further reveals that numerous long-term holders are refraining from selling their coins, anticipating further profits.
However, a detailed analysis of long-term investor trading activity indicates that a segment of this investor class is still underwater. A recent report by the pseudonymous CryptoQuant analyst IT Tech disclosed, “The cohort that invested in BTC 2-3 years ago, for instance, is still grappling with an average realized price of $45,000, resulting in an ongoing average loss.”
Despite these challenges, market participants increasingly perceive BTC as a valuable long-term asset, contributing to the steady decline in its exchange reserve.
Potential Implications and Concerns:
The dwindling BTC exchange reserve could have significant implications for market liquidity. With fewer investors opting to keep their BTC on exchanges, the pool of coins available for trading diminishes.
This reduction in available coins could lead to a shallower order book, resulting in a decrease in the number of buy and sell orders. The consequence may be increased difficulty for executing large orders.
The narrowing availability of orders may widen the gap between bid and ask prices, potentially escalating the cost of trading BTC. Traders might find themselves having to pay more to execute their orders due to reduced liquidity.
Lastly, diminished liquidity has the potential to amplify price volatility, as smaller orders may exert a more pronounced impact on the overall market price. This scenario underscores the need for market participants to closely monitor these developments and adapt their strategies accordingly.
Disclaimer: Please note that the viewpoints and perspectives expressed by the author, as well as any individuals referenced in this article, are intended solely for informational purposes. They should not be construed as financial or investment advice. It’s important to acknowledge that investing in or trading cryptoassets carries inherent financial risks.