Emily Walker
Glassnode, a firm specializing in blockchain analytics, has clarified a prevailing myth about the decrease in Bitcoin exchange supply.
The Decline in Bitcoin Supply Is Not as Significant as Believed
In its recent weekly report, Glassnode addressed a common misunderstanding in the Bitcoin community regarding the drop in the Balance on Exchanges during the current market cycle.
The term “Balance on Exchanges” refers to an on-chain metric that tracks the total volume of Bitcoin held within the wallets of centralized exchanges.
Typically, investors transfer their Bitcoin to exchanges primarily to sell, which positions the Balance on Exchanges as a gauge for available selling supply. Consequently, increases in this metric may indicate bearish sentiments for Bitcoin’s price, as it signals more holders are willing to sell. Conversely, a drop could be perceived as bullish.
The analytics firm included a chart depicting the Bitcoin Balance on Exchanges in their report:
The graph reveals that the Bitcoin Balance on Exchanges was at 3.1 million BTC in July 2024 and has since decreased to approximately 2.74 million BTC. This noticeable fall has led many to speculate that a ‘supply shock’ may be occurring.
However, Glassnode offers a different perspective, stating:
“Many view this decline as a supply shock caused by a withdrawal of coins by investors, possibly leading to upward price pressure. Yet, we believe much of this drop results from coins moving into ETF wallets managed by custodians such as Coinbase.”
Spot exchange-traded funds (ETFs) were introduced in the U.S. at the start of last year and provide a familiar approach for traditional investors to gain exposure to Bitcoin. This investment method has rapidly gained traction, with spot ETFs now controlling a significant share of the supply.
According to Glassnode, “Following the SEC’s approval of Bitcoin Spot ETFs in January 2024, eight out of eleven spot ETFs chose Coinbase as their custodian. Consequently, as the demand for ETF products soared, a considerable migration of coins from exchange wallets to Coinbase’s institutional custodian wallets took place.”
The firm also shared a chart illustrating the trends in the holdings of these spot ETFs.
If we combine the Bitcoin holdings of the spot ETFs with those of exchanges, an intriguing perspective emerges.
The combined metric currently stands at 3.04 million BTC, roughly equivalent to the level at the beginning of 2024, just before the introduction of spot ETFs.
Glassnode concludes that the observed decrease in the Bitcoin Balance on Exchanges is likely indicative of a transition in market dynamics rather than a reduction in the available selling supply.
Current Bitcoin Price
Bitcoin’s price has experienced a recovery of about 3% in the last 24 hours, now exceeding $105,000.