On-chain data shows that Bitcoin transactions leaving the exchanges exceed the number coming in since the collapse of the FTX.
Bitcoin Exchange withdrawals have been higher than deposits lately
As noted by an analyst on Twitter, BTC exchange deposits have been declining in recent months. There are a few relevant indicators here; the first is the “exchange withdrawals”, which measures the total number of transfers that go out of centralized exchange wallets.
The second metric is the “exchange deposits”, which, as is already clear from the name, simply tells us about the number of the opposite type of transactions taking place in the market.
Exchange transactions can give a hint about investor behavior in the market as holders mostly use these platforms for selling and buying purposes. Deposits are usually made for distribution while withdrawals can be made for accumulation related purposes.
When these exchange rate transaction metrics have high values, it means that the investors are probably actively trading the cryptocurrency at the moment.
Another indicator is the “transaction count,” which measures the total number of Bitcoin transfers that take place anywhere on the network. This statistic naturally provides insight into whether the blockchain is currently widely used by users or not.
Now, here’s a chart showing the trend in these Bitcoin indicators throughout the cryptocurrency’s history:
The trends in the transaction count, exchange withdrawals and exchange deposits | Source: Jimmy V. Straten on Twitter
As can be seen in the chart above, Bitcoin Exchange deposit transactions have been on a downward trend since the start of the bear market. This is not uncommon and was also seen during the last bear market (2018-2019).
The reason why this trend can be observed is that the appetite for trading and especially selling decreases as a bear market takes its course and leaves traders exhausted.
However, in recent months, a special trend has appeared in the Bitcoin market that has never been seen before in the history of the cryptocurrency. It is the fact that exchange withdrawals have now overtaken deposits.
In the past, withdrawals always remained below deposits. A contributing factor behind this may have been miners producing fresh Bitcoin off exchanges and then making deposits to sell it, throwing the transactions off balance.
However, since the November 2022 FTX crash, this structure appears to have flipped. The collapse of a platform like FTX renewed fears among investors about keeping their coins in centralized custody. So a large number of holders made the decision to withdraw their funds to keep them in self-custodial wallets, giving an unnatural boost to withdrawal transactions.
Bitcoin withdrawals have remained higher than deposits in these early months of 2023, but the gap has narrowed recently. It remains to be seen whether the market structure will return to the way it used to be, or whether this will become the new norm.
At the time of writing, Bitcoin is trading around $22,000, down 7% over the past week.
Looks like BTC has consolidated sideways recently | Source: BTCUSD on TradingView
Featured image of Kanchanara on Unsplash.com, charts from TradingView.com, Glassnode.com