As we have reported over the past two months, the number of BTC held on exchanges has been consistently declining since Black Thursday in March, during which the price of BTC dropped by over 50%.

Continuing on this downward trajectory, the balance of BTC on exchanges has now reached its lowest point in over a year, having decreased by over 320,000 BTC - more than 12% - since Black Thursday.

The number of BTC held on exchanges has been in constant decline since March (Glassnode Studio)

One widespread narrative is that this exodus is due optimistic long-term sentiment, leading investors to withdraw their funds for hodling in anticipation of a bull run in the future. This is supported by the growing number of BTC whales, as well as continued hodler accumulation over the past 2 months.

However, a deeper analysis of prominent exchanges reveals that this is not the whole story.

Some Exchanges are Losing More than Others

The overall trend of withdrawals is not evenly distributed across all exchanges; some have experienced a large number of withdrawals, while others have remained consistent or even seen increases in their BTC balance.

The largest outflows have been from:

In particular, Bitfinex has seen the steepest decline, losing 66.6% of its total BTC balance since Black Thursday.

Bitfinex, BitMEX, and Huobi have all seen significant withdrawals of BTC since Black Thursday in March 2020 (Glassnode Studio)

In contrast, Coinbase remains the most popular exchange for holding BTC, with a current balance of 968,000 BTC, having decreased by only 0.2% since Black Thursday. Meanwhile, other popular exchanges such as Binance and Bitstamp have actually seen a slight increase in BTC balance during the same period.

This shows that long-term hodling behavior cannot fully explain the decline in BTC on exchanges, and that the cause must also be coming from specific exchanges themselves.

What is Causing the Decline?

Cold Storage for Hodling

As alluded to above, a potential explanation for this exodus from exchanges is that investors are removing BTC from exchanges for longer-term hodling, implying bullish sentiment in the mid- to long-term.

While some market observers are touting this narrative, it doesn't explain why only a few exchanges are seeing this effect or why the movement began exactly on Black Friday. It also assumes that bullish investors will remove their BTC from exchanges rather than simply leaving them there; while this is known to occur in general, an effect this large would require a significant number of investors to behave like this.

Lack of Trust

Immediately after the crash, BitMEX experienced a much more rapid decrease in BTC balance than any other exchange. This was almost certainly due to the fact that the exchange experienced two DDoS attacks on Black Thursday, delaying user requests and causing disruption to their service, during which users could not respond to the rapidly dropping market.

This likely led many users to withdraw their funds from the exchange. However, it does not explain why these funds have not been moved onto other exchanges, nor does it fully justify the continued decline of the number of BTC on the exchange.

Prior to Black Thursday, Huobi's BTC balance had already started to decline, suggesting that part of its recent decrease may have been due to market forces at play before the crash.

The same may be true of Bitfinex. Despite the drop having been more rapid since the crash, the BTC balance on Bitfinex was already in a phase of steady decline. When Black Thursday hit, the exchange's BTC balance had already decreased by over 47% since its highest point in December 2018.

While the decline after Black Thursday was much faster than before, Bitfinex's downward trajectory was already in progress, making its rapid decrease in BTC balance less unusual, and possibly explaining why its decline has been more drastic than that of other exchanges.

Conclusions

Overall, the reasons behind this seemingly inexplicable decline in the balance of BTC on exchanges are many and varied. There is likely no single driving force causing users to remove their BTC from Bitfinex, BitMEX, and Huobi, while leaving them on others. Rather, the combination of factors mentioned above, and likely other market forces and trends, is causing this effect.


Disclaimer: This report does not provide any investment advice. All data is provided for information purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.