2021 Low: Only 13.2% of Bitcoin’s Circulating Supply is on Exchanges

Bitcoin had a good week, reaching $42,000 on August 2nd, the highest its value has been since May. However, this appears to have triggered a mass exodus of exchange outflows, with Glassnode reporting a rate of 100k Bitcoin per month leaving exchanges.

Understanding Recent Bitcoin Outflows

Glassnode’s On-Chain analysis gives us an interesting insight into the behavior of Bitcoin traders. The number of BTC being withdrawn from exchanges, referred to as outflows, reached its highest levels for 2021. While this outflow was likely triggered by Bitcoin’s recent price increase, it still comes as a shock, as Bitcoin has been worth more in the past whilst maintaining somewhat modest outflows from exchanges. 

Previously, Bitcoin’s biggest outflow period this year was in April, where around 70k Bitcoin left exchanges. At that time, Bitcoin was worth close to $58,000. It is easier to compare this activity to November 2020, as this was the last time such an intense outflow was seen– where they hit almost 150k. 

Glassnode also highlighted the changes in behavior Binance has seen, compared to Coinbase, two of the biggest crypto exchanges worldwide. Coinnbase has been seeing significant outflows throughout the year, with Binance being the main receiver of these funds. The report adds:

“The trend for Binance appears to have stalled and started to reverse, with a total outflow of approximately 37.5k BTC this week. Coinbase balances plateaued in June, saw a large deposit of around 30k BTC in mid-July, and this week an outflow of 31k BTC. This has largely unwound all inflows since mid-May. Overall, this may well be the start of another era of net exchange outflows and is a trend to watch.”

It is also possible that fewer BTC is reaching Binance due to the slew of regulatory action taken against it, occurring around mid-June.

Glassnode’s stats are very similar to the results from CoinShare’s Asset Fund Flows report, showing asset investment products have also seen significant outflow. CoinShare’s own fund saw $49.6 million in outflows, caused largely by both Bitcoin and Ethereum. Only two funds tracked by CoinShares performed well this week: ETC Insurance and, GrayScale, who just recently launched a separate DeFi fund. 

What’s Triggering Bitcoin Exchange Outflow?

This activity is not unusual when a coin begins to rise. From January up to May, outflows were consistent– this was around the time Bitcoin was regularly setting new all-time highs. Inflows were also extremely low during this period.

It also helps to compare current activity to outflow movements of 2020. From mid-March up to July 2020, BTC outflows were regularly high, and at one point reached almost 150k. This coincides with Bitcoin’s price moving from $5,000 up to $9,200. The same happened again from September 2020 to December 2020, where Bitcoin moved from $11,000 to $20,000. During that time, outflows once again reached almost 150k per month. 

In other words, Bitcoin’s outflows often occur when people try to take profits, and many consider the best time for this to be when value is rising. This could be viewed as a positive sign, marking the beginnings of a new bull run, although this is only one metric, and as Glassnode’s report states, “a full scale bullish impulse can take some time to develop”.

Also note while outflows have usually been a positive indicator, there are circumstances where they can be negative. For instance, if people are nervous about the trajectory of an asset, then it makes sense for them to exit the markets. Although that does not appear to be the case at the moment.

Expect more outflows to occur if Bitcoin continues to climb. Considering this recent eagerness to leave exchanges, it would be unsurprising for outflows to skyrocket if Bitcoin makes it back to $50,000. 

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What do you think is causing the recent outflows? Let us know in the comments below.