Bitcoin (BTC) is owned by leading crypto exchanges such as Coinbase, Binance and Kraken near a six-year low, according to CryptoQuant data from September 20.
The contraction came as the broader market stabilized after sharp losses in most of August and the first half of September. As of September 20, BTC prices are still below $30,000, but there has been significant sideways movement in recent weeks.
Bitcoin reserves on exchanges are falling
According to trackers, exchanges control 2.09 million BTC as of writing. In total, the Bitcoin network will issue 21 million coins.
However, in 2023 there are more than 19.7 million in circulation, and government companies such as Tesla – the electric car manufacturer – and MicroStrategy – the business intelligence company – have filled up. Generally, entities can hold cryptocurrencies in non-custodial wallets or exchanges such as Binance or Coinbase.
Exchanges offer custodial wallets where users can store their coins for trading or even HODL. Users who hold their coins on exchanges can easily exchange them for USDT or other altcoins. As mentionedthe number of coins held on exchanges continues to decline – which, while it may seem bullish at first glance, does not necessarily mean prices will recover.
Typically, the outflow of coins from exchanges can indicate an improving market and the expectation of price increases. However, given the current regulatory environment, traders and Bitcoin holders may prefer to take control of their coins when fear strikes.
Accordingly, more and more holders are securing their coins in their non-custodial wallets as a protective measure, which may explain declining Bitcoin exchange reserves.
SEC, regulators are strict about the stock exchanges
The number of Bitcoins held on exchanges has fallen over the course of 2022, but appeared to have fallen more rapidly in late 2022. Around that time, FTX, a popular crypto exchange, collapsed, freezing billions in customer funds.
Outflows slowed in the first quarter of 2023 after the collapse of some regional banks in the United States, but have continued to decline since then. The dip can be attributed to the bear market, but mainly because the US Securities and Exchange Commission (SEC) is cracking the whip on Binance and Coinbase, accusing them of non-compliance.
In June, Binance and Coinbase were sued by the SEC. The regulator alleged that the two exchanges were issuing unregistered securities, citing some such as Cardano (ADA) as examples.
Amid this crackdown, Binance US became a focal point. Since then, there have been major layoffs and business disruptions. Binance US trading volume is now down by more than 95%.
Feature image from Canva, chart from TradingView