On August 29, the amount of Bitcoin (BTC) held on exchanges fell to its lowest level since January 2018.
Traders are now wondering what could have caused Bitcoin’s failure to break above $31,000, as this price action is not consistent with their view that fewer coins on exchanges is bullish for the BTC price.
The bearish outlook for Bitcoin, which is held on centralized exchanges, is based on the notion that when traders raise their coins, it means bullish sentiment.
The data shows no correlation between on-chain metrics and Bitcoin price changes.
Blockchain transaction data shows that Bitcoin deposits on exchanges have been declining since mid-May.
Meanwhile, Bitcoin’s price trajectory offers no significant signs of an upward trend, with the exception of a brief spike in mid-June, which coincided with BlackRock’s presentation to create a spot exchange fund.
It is worth noting that during the period that included a 30 percent increase from March 12 to March 19, deposits on the exchanges increased, contrary to the forecasts of the analysis of the chain.
Of course, all indicators are subject to random errors, and it is unwise to rely solely on chain analysis when dictating market trends.
For example, there are three possible reasons that explain the decline in deposits in exchanges that are not related to a weakened short-term selling intention.
The main explanation for Bitcoin’s withdrawal from exchanges, which does not necessarily indicate a reduction in short-term selling pressure, is the growing confidence in custody solutions.
The prevailing uncertainty about storage solutions may explain the cautious attitude of investors before withdrawing from the stock market.
Just a day after the Binance case, the commission turned its attention to Coinbase for similar reasons, arguing that prominent altcoins offered by the exchange meet the criteria for securities.
These regulatory measures may have influenced users’ decisions to keep their deposited coins outside the exchange, regardless of their intention to sell them, making withdrawals unrelated to price fluctuations.
While the majority of Bitcoins leaving the exchange are indeed expected to go to cold wallets, suggesting that owners are less willing to sell, the demand side of the equation has faced its own challenges.
As a result, the data highlights declining buying interest, which in turn reflects Bitcoin’s lack of upward momentum.
This parallel trend is consistent with the decline in the number of coins placed on exchanges.
As a result, despite the collapse of Bitcoin exchange deposits to levels last seen in 2018, the impact on the balance of supply and demand is minimal due to subdued trading activity.
Finally, while on-chain metrics may provide fundamental support for the idea that coins are under the control of long-term holders, this perspective offers little support for price dynamics, as the move may reflect a broader reluctance to actively trade coins.