In response to growing bullish sentiment in the Bitcoin market, many investors have begun removing their holdings from exchanges to protect their assets while the popular coin appreciates.
Most of the world’s largest crypto exchanges now hold less Bitcoin and other cryptocurrencies than they have in the past year. When investors pull their funds from exchanges, it is usually a very clear indicator that less trading will occur within a close timeframe and that a bull run is expected by investors.
An incoming bull run isn’t the only reason for the mass removal of cryptocurrencies from at least one exchange.
One of the most widely used cryptocurrency exchanges, Coinbase, has indicated that they would be assisting the US government in analyzing crypto movement by selling their in-house analytical products to various governmental agencies, including the IRS and the DEA. Directly following that news, many investors began removing their crypto from the popular exchange in fears that their personal data may not be as secure as they had once imagined.
As far as the recent exodus from Coinbase is concerned, those worried about their personal data being leaked to the US government may be unwarranted. Coinbase has gone on the record to explain that the analytical product which is now being eyed by both the DEA and the IRS for purchase does not actually hold any user data. Instead, the product in question is a tool that those agencies can use to track suspicious activity. Despite the effort to bring a sense of security to its users, record levels of BTC still saw its way off of the exchange and into private wallets.
While Coinbase exchange balance volume is being compounded by fear of compromised data, the exchange is also being affected by the same investor behaviour that nearly all other major crypto exchanges is going through.
Since March, the amount of Bitcoin held on exchanges has steadily decreased and is now at levels lower than anything we have seen over the past 12 months. The cryptocurrency crash that happened in early March spurred the first bout of BTC removal from exchanges, but since then there have been multiple signs leading to a significant comeback for Bitcoin – including the possibility for BTC to reach new highs by the end of the year. Many investors have taken these positive indicators as a sign that selling in the near term may not be the preferable way to go. Therefore, more and more have begun removing their digital assets to be secured in cold storage.
Looking at historical data for BTC, similar patterns can be seen in a lead up to a bull run. One example of lowered exchange balances in anticipation of a bull run comes from last year. BTC was in a period of consolidation and was trading near $4K before reaching new highs of almost $15K. During this run, investors removed their cryptocurrency from exchanges to wait out the bull run.
An interesting side effect of lower exchange balances is that there is less pressure to sell BTC. As many hodlers seem to be waiting for further developments buyer demand will continue to rise, as will prices for Bitcoin. The bullish case for Bitcoin is furthered when we consider the existence of major fintech companies like Grayscale buying up Bitcoin nearly as quickly as it is being mined.
Not only does the major institutional interest in Bitcoin limit the available BTC for sale on exchanges but it also helps drive up the price. As we have seen in the past, Bitcoin markets benefit greatly from multiple factors working together to create a perfect storm. Among the many factors, there is investor bullish sentiment, greater institutional interest, lower supply coupled with greater demand, and an expected prolonged accumulation period all pointing to Bitcoin valuation.