In the heart of blockchain analysis, Glassnode has recently come forward to debunk a prevailing belief in the Bitcoin community concerning the downtrend in the Exchange Balance over this period. In this article, we delve into the nuances of this discovery and shed light on the dynamic nature of the available Bitcoin supply.
Demystifying the Myth Surrounding Bitcoin’s Supply Decrease
In its recent weekly communiqué, Glassnode delves into a common misconception that has been making rounds in the Bitcoin community about declining Exchange Balance during the present cycle. In this context, the “Exchange Balance” denotes an on-chain gauge that quantifies the collective amount of cryptocurrency held in the wallets of all centralized exchange platforms.
One primary motivation behind investors transferring to exchanges is to execute a sell-off, making the Exchange Balance a fairly accurate indicator of the asset’s available sell supply. Increases in this metric are deemed bearish for Bitcoin’s price, as it suggests a readiness among more holders to sell off their tokens. Conversely, declines can be interpreted as bullish signals. Glassnode has shared a chart that tracks the fluctuation in Bitcoin’s Exchange Balance:
The above graph illustrates that the Bitcoin Exchange Balance, which was at 3.1 million BTC in July 2024, has now plummeted to a mere 2.74 million BTC. This considerable decrease has led to an assumption of an impending ‘supply shock’ for the asset. Glassnode, however, proposes a different narrative. The analysis firm is of the opinion that the majority of this decline is more about coins being rearranged into ETF wallets supervised by custodians such as Coinbase, than individual investors withdrawing their investments, causing a potential price hike.
The Impact of Spot Exchange-Traded Funds (ETFs)
Spot Exchange-Traded Funds (ETFs) surfaced in the US at the onset of the previous year, offering investors an alternative avenue for obtaining exposure to the asset, akin to traditional investment methods. This form of Bitcoin investment has quickly found favor among many, and currently, the spot ETFs manage a considerable amount of the circulating supply.
Glassnode points out, after the Bitcoin Spot ETFs received SEC approval in January 2024, the lion’s share of the spot ETFs opted for Coinbase as their custodian. Consequently, a substantial migration of coins from exchange wallets into Coinbase’s institutional custodian wallets occurred as the demand for ETF products escalated.
Glassnode has shared a chart depicting the trend in the holdings of these spot ETFs.
On combining the Bitcoin holdings of the spot ETFs with that of the exchanges, an intriguing pattern emerges. The combined indicator currently sits at a value of 3.04 million BTC, which mirrors the market’s position at the beginning of 2024, just before the launch of the spot ETFs.
Glassnode thus concludes that the apparent downturn in the Bitcoin Exchange Balance is more likely a reflection of a shift in market dynamics than a drop in the sell-off supply.
Current State of Bitcoin Price
Bitcoin has recently witnessed an approximately 3% recovery, driving its price above the $105,000 mark.
FAQ: What is the Exchange Balance in terms of Bitcoin?
The “Exchange Balance” signifies an on-chain metric that measures the total quantity of Bitcoin held in the wallets of all centralized exchange platforms.
FAQ: Why are Spot Exchange-Traded Funds significant?
Spot Exchange-Traded Funds offer an alternative method of gaining exposure to Bitcoin, similar to traditional investment approaches. Consequently, they manage a considerable proportion of the available Bitcoin supply.
FAQ: Why has there been a shift in Bitcoin from exchange wallets to custodian wallets?
With the rising popularity and demand for ETF products, a notable migration of Bitcoin from exchange wallets into institutional custodian wallets like those managed by Coinbase has been observed. This shift primarily accounts for the observed decline in the Bitcoin Exchange Balance.
