With Bitcoin price nearly 50% off its all-time high, bullish traders are placing their hopes on a new data point that could show the market is nearing a low point: a sharp spike in cryptocurrency outflows from the exchanges.
While it’s too early to say if the outflows will continue, the data could suggest that some traders are happy with the current price and have no intention of liquidating their Bitcoin (BTC) on the exchanges. In the logic of the cryptocurrency markets, traders could move their coins to wallets, custody, or cold storage while waiting for Bitcoin price to rebound.
Crypto exchanges recorded a net outflow of 22,550 BTC on Monday, the largest one-day net outflow since November 2, 2020, according to data provider Glassnode. The blockchain analytics firm tracks the flow of 13-bit cryptocurrency exchanges, including Binance, Coinbase, and Kraken.
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“The drain can best be described as multi-faceted bordering on HODLing and the use of digital currency in decentralized finance,” Petr Kozyakov, co-founder and CEO of global payments network Mercuryo, told CoinDesk. “HODL” is crypto market slang for buy and hold.
The number of bitcoins held in exchange wallets fell from 2.56 million to a three-week low of 2.54 million.
Investors typically move coins from exchanges to wallets and withdraw liquid supply from the market when they want to buy and hold in anticipation of price rallies.
“Investors appear to be storing their assets in hardware wallets in the expectation that the current drop in prices will offset new price moves towards and above the previous all-time high,” added Kozyakov.
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Some investors take over the direct custody of Bitcoin and tokenize the coins on the Ethereum blockchain for an additional return. Tokenization refers to locking Bitcoin on Ethereum and issuing an appropriate number of tokens tied to the price of Bitcoin. The tokens can then be stored in credit and credit logs for decentralized finance (DeFi).
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“With Bitcoin in DeFi, investors can maximize their profits as prices go down, a better option for many who prefer not to sit idle their assets,” Kozyakov said.
Data from the DeFi Pulse website shows that the total number of bitcoins locked in smart contracts has increased from 94,000 in April to around 174,000 now.
Such tokenization of Bitcoin in other networks is also a source of reduction in supply in the market.
All in all, the recent outflow of Bitcoin from the centralized exchange paints an optimistic picture. However, Jason Deane, an analyst at Quantum Economics, called for a cautious approach.
“The market is currently lacking direction, sentiment is mixed and many metrics are reporting lower demand, so this traditional bullish signal should be interpreted with caution and in the context of other indicators,” said Deane.
Bitcoin is currently trading near $ 33,000, down 1% from the day. The price fell 35% in May on environmental concerns and China’s regulatory crackdown.
While currency outflows have increased, demand from “whale” companies – those with sizeable holdings whose actions can theoretically move the market – remains subdued at best. While business offering 1,000-10,000 coins rose 35,000 BTC to 4.183 million this month, the number remains below the May 24 high of 4.186 million.
A sustained increase in the supply of whale units may be required to restore the battered market confidence. The balance of these major investors rose in line with the price during the bull run from October 2020 to April 2021.
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