Key Takeaways

• The balance of Bitcoins on exchanges is in constant decline, now at the lowest point since December 2017 
• Meanwhile, long-term investors continue to hold, soaking up the supply
• Coins that have not been touched in 10 years now outnumber those held on exchanges 

I wrote a piece last week on the exodus of stablecoins from exchanges, with the balance currently the lowest since October 2021, with 45% of the total balance of stablecoins on exchanges flowing out in the last four months. 

But the glut in liquidity is not limited to stablecoins. The world’s biggest cryptocurrency is also seeing funds flow out. Only 11.8% of the total Bitcoin supply is currently on exchanges – that is the lowest since December 2017. 

To jot your memory, December 2017 was the previous bull market peak. Bitcoin rose to within a hair of $20,000 before freefalling into a two-year-long bear market which ravaged the entire industry.

Since January 2020, exchanges’ reserves of Bitcoin have been only going one way: down. It hints at the demand/supply imbalance that so many Bitcoin truthers advocate for, with the much-vaunted hard supply cap of 21 million coins for Bitcoin. 

If demand keeps rising, they argue, the price can only go up because supply cannot keep up. 

Central to this thesis is the resilience of long-term holders to keep a firm grasp on their bitcoins. And when assessing whether they have, the answer is a resounding yes. 

The below chart presents long-term holders against the total exchange balance. In November 2022, the number of bitcoins last active 10+ years ago overtook the number of bitcoins on exchanges. 

Of course, some of these long-term holders will be lost coins, either via their owner dying or losing their private keys. 

But the stat is still interesting and speaks to the cohort of (very) early investors in Bitcoin who remain clinging to their coins with all their might. Remember, this includes the anonymous Satoshi Nakamoto, who is estimated to hold over 1 million coins, or 5% of the total supply. 

Below is the chart displaying the current portion of the Bitcoin supply split out by time held and compared to the exchange balance. 

The result is interesting, but even more so when considering that the last three years brought both the euphoric highs of Bitcoin at nearly $70,000 during the pandemic and then the bone-crushing fall through 2022, which saw it careen down towards $15,000. 

In terms of the long-term trajectory of Bitcoin, it’s undoubtedly bullish. Of course, it all depends on whether the demand for additional Bitcoin will hold up. The supply may be getting squeezed, but that is all for nothing if the demand side doesn’t hold up its end of the bargain. 

And on that note, the last year has been a big blow. Not only has capital flowed out of the space at an alarming rate, but a number of very high-profile scandals (LUNA, Celsius, FTX and so on) have rocked the space. The fear is that these episodes have dented the reputation of the cryptocurrency space and will inhibit the demand for Bitcoin on the intuitional side. Have people been put off moving into the space?

It’s hard to say. But in looking at long-term holders, their confidence seems resolute.