Key Takeaways

• 11.8% of the Bitcoin supply is currently on exchanges, the lowest mark since 2017
• Supply of Bitcoin on exchanges has been consistently falling since March 2020, when crypto bottomed ahead of the explosive pandemic bull run
• Originally, people pulled Bitcoin to participate in vibrant crypto ecosystem, with high volumes and activity and much scope for yield
• Today, volumes and interest have fallen, but pattern of Bitcoin fleeing exchanges has continued, albeit for different reasons
• Bitcoins leaving exchanges in recent months are likely due to fears over security and transparency, heightened after FTX collapsed

“Not your keys, not your coins”. 

One of the oldest sayings in crypto. And after a year that saw one of the biggest exchanges around shockingly gamble away customer assets in secret, many will wish they had paid it more attention. 

Now, people are listening. Although in truth, this has been happening all throughout the pandemic. The balance of bitcoins on exchanges is now down to 2.27 million – that is the lowest mark since March 2018, a month which saw “God’s Plan” by Drake being played on the radio over and over and over and over again. 

The mark is even lower when compared to the overall supply. There is currently 11.8% of the Bitcoin supply on exchanges. This is the lowest mark since December 2017. 

Crypto fans will remember December 2017 as the month that Bitcoin went absolutely bananas. I remember exactly where I was when I saw that Bitcoin had breached the $20,000 mark for the first time; it felt like a seminal moment. 

It marked the top, incidentally, with the orange coin at $7,500 seven weeks later. Within a year, it wasn’t far above $3,000. It was a long and barren bear market with fortunes not turning around until COVID hit in 2020. 

Where is the Bitcoin going?

I say “not your keys, not your coins”, but this isn’t the only thing driving the movement of coins off exchanges. 

As the above charts show, the Bitcoin supply on exchanges has been coming down since March 2020. This is also the month that COVID kicked off. Since I’ve been in crypto, I also believe it was the scariest time of all – Bitcoin plunged from close to $10,000 to $5,000 in a gruesome 48 hour stretch as markets around the world tried to figure out what exactly this COVID-19 thing was. 

But after this, the bull market kicked into gear. So, why has Bitcoin on exchanges been falling throughout this period?

The truth is, ironically, that it could be for the exact opposite of the matra behind “not your keys, not your coins”, at least in part. This is due to the rise of crypto lending platforms during the bull run – firms like Celsius, BlockFi, Voyager Digital and so on.

These platforms offered a nice yield on Bitcoin, and this attracted billions of dollars of inflows. Now, you may notice one thing about those names: today, they are all bankrupt. Which means that, obviously, coins currently leaving exchanges in recent months are for other reasons. 

So there could be a dual explanation here: during the bull run, coins were leaving exchanges for yield on centralised platforms. Or they were leaving exchanges for DEXs, or other destinations. Crypto was booming at this time; there were no shortage of things to do or yield to earn. 

Today, however, volumes have been decimated. Looking at total value locked within DeFi, it is down to $50 billion, having been up to $180 billion in December 2021. That is a fall of 72%. Simply put, prices are down, volumes are down and interest in general is down. 

This fallen volume and interest have likely reduced the pull of Bitcoin off exchanges. But this drop may have been replaced by people pulling Bitcoin at a similar rate, but for an entirely different reason: to be secure, and to send to cold storage. You can thank Sam and the various other scandals for this.