The number of Bitcoins held on centralized exchanges has fallen to the lowest level since 2018, according to information from glass knot. Users appear to be withdrawing assets for fear of contagion after recent issues with Celsius and Babel Finance. The chart below showed a sharp drop in BTC on exchanges on June 13 when Celsius announced it would suspend withdrawals.
Why is Bitcoin leaving exchanges?
BTC volume on exchanges topped 2.4 million BTC in 2018 and never dropped below that milestone until June. It peaked in May 2020 at 3.1 million BTC and has been on a downward trend ever since.
Historically, investors have viewed cryptocurrency exiting exchanges as a bullish indicator. As the balance of an asset on the exchanges decreases, the liquidity and its ability to be traded also decreases. Many believe that when Bitcoin outflows increase, it is due to investors moving coins into cold wallets to hold them for the long term.
In light of concerns around some exchanges, crypto YouTuber Guy from Coinbureau recently affirmed,
“It’s now more important than ever to stress the importance of *self-care*. Say it with me: not your keys…
You cannot *check* the current creditworthiness of all these CeFi lenders. Holding funds with them is based on trust. But, crypto is supposed to be *trustless*. You don’t need insurance, you have to own your own parts.
The topic was also discussed at length in a recent Twitter Space between CryptoSlate, EAM Crypto and Defi Yield App. The noncustodial nature of centralized exchanges has been challenged by Enrique de EAM Cryptowho argued that the contagion of Terra’s collapse may not have ended.
Brad Mills, the host of the MIM podcast, recently reminded followers of the Mount Gox disaster,
“I learned ‘Not your keys, not your coins’ and ‘Don’t trust, verify’ in the MtGox meltdown. I’m still here.
You are still ahead, this bear market is a reset.
Celsius investors still cannot access their funds more than two weeks after withdrawals were suspended. Holding Bitcoin in a wallet gives the investor complete autonomy over the assets, whereas depositing crypto to trade is like putting it in a bank but without government bailout protection.
With Bitcoin levels on exchanges below 2.4 million BTC and over 30 million crypto investors using Binance alone, asset scarcity is increasing. If demand for Bitcoin continues to grow as exchange balances decline, this could create a robust setup for a price rally.