Bitcoin (BTC) Supply on Exchanges Plummets to 5-Year Low: Key Insights

The supply of Bitcoin (BTC) on cryptocurrency exchanges has dwindled to its lowest point in half a decade, marking a substantial drop as investors increasingly withdraw their assets from these platforms. This reduction in Bitcoin holdings on exchanges coincides with a diminishing trust in crypto trading platforms, which have recently faced heightened regulatory scrutiny.

According to Santiment, a leading crypto on-chain and social metrics platform, the overall supply of Bitcoin on exchanges has dropped to a mere 5.38%. This decline to the lowest level since December 2017 indicates a noteworthy shift in investor behaviour regarding the custody of their Bitcoin assets.

Evidence and On-Chain Data

Santiment’s on-chain analysis substantiates this trend, revealing a continuous movement of Bitcoin into self-custody. The platform’s recent post on November 29 highlighted this downward trajectory in Bitcoin supply on exchanges, citing investors’ growing inclination towards self-custody solutions due to waning confidence in exchange reliability.

This movement has been particularly pronounced following recent regulatory pressures on major crypto exchanges. The aftermath of the settlement between Binance and U.S. regulators and the SEC’s lawsuit against Kraken has seemingly amplified this trend. Investors appear to gravitate away from exchange custody amid concerns over their credibility and regulatory compliance.

Bitcoin vs. Tether Supply Dynamics

Interestingly, while Bitcoin exits exchanges, the ten largest exchange wallets holding Tether (USDT) have witnessed a surge, collectively accumulating $15.23 billion worth of the stablecoin. According to Santiment data, this increase in USDT holdings by exchanges marks a peak not seen in 17 months, illustrating a shift in power dynamics towards stablecoin liquidity within exchanges.

Bitcoin Performance Amidst the Exodus

Despite this significant decrease in Bitcoin supply on exchanges, the cryptocurrency displayed a resilient performance in the market.

 At the time of writing, Bitcoin was trading at $41,597, registering a -0.32 decline over the last 24 hours. According to the most recent charts, it increased by 9.11% over the prior month and 5.41% over the previous seven days.

The Regulatory Context

This decline in Bitcoin holdings on exchanges aligns with a trend that started in early June 2023, coinciding with the SEC’s actions against Coinbase for allegedly operating as an unregistered securities exchange. The regulatory landscape and intensified scrutiny appear to have prompted a shift in investor behaviour, favouring self-custody options over exchanges.

The decline in Bitcoin supply on exchanges to a five-year low underscores the evolving dynamics between investors and cryptocurrency trading platforms amidst regulatory pressures, showcasing a growing preference for self-custody solutions and stablecoin holdings within exchanges.

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