HomeMetricsThe tantalizing correlation between Bitcoin in exchange wallets and the BTC price

The tantalizing correlation between Bitcoin in exchange wallets and the BTC price

In the cryptocurrency world, a lot of aspects are interlinked. The price of any crypto asset often hinges on how much of the supply is stored on exchanges. In the case of Bitcoin, the previous correlation has seemingly been broken, in a good way. 

The Bitcoin in Exchange Wallets Situation

Obtaining cryptocurrency assets is often done through online exchanges, brokers, and trading platforms. Most of these service providers allow clients to store their assets on the platform. As convenient of an option as this may be, it isn’t advised. Retaining control of one’s assets is the key draw of cryptocurrencies.

Among Bitcoin users, this is a well-known fact. As such, the metrics confirm how few BTC have been kept on exchanges over the years. Until late 2013, these balances were nearly non-existent. That is due to several reasons.

First of all, the number of exchanges trading BTC was limited. Secondly, Mt. Gox was the biggest platform at the time and everyone knows how that story ended. Third, the overall interest in Bitcoin was much lower than it is today.

Fintoism Bitcoin on Exchange Wallets 2018

With more competition emerging among exchanges, the number of BTC on exchanges didn’t increase right away. In fact, the metrics decrease between late 2014 and early 2016. Since that time, the uptrend has become more apparent. 

When the Bitcoin price hit $1,1018 in December 2013, just under 245,000 BTC was stored on exchanges.  Even at $18,882.36, the supply on exchanges sat at nearly 855,393 BTC. Given the total supply of Bitcoin at the time, those numbers are relatively low. A higher price doesn’t automatically result in more BTC in exchange balances. 

The Shift in Metrics

Until early December 2018, the correlation between Bitcoin in exchange wallets and the BTC price remained the same. From that point forward, things have changed. That is not necessarily a bad thing either. However, with more BTC stored on exchanges, there is more liquidity. Traders are well aware of how liquidity can work both ways. 

Fintoism Bitcoin on Exchange Wallets 2020

In the matter of weeks, the supply of Bitcoin in exchange wallets imploded. On November 12,2018 there were 1,160,134.1577 BTC on exchanges combined. By December 25,2019 that number increased to 2,139,477.57 BTC. An increase by nearly 50%, despite seeing bearish price action.

In fact, it is possible that the declining Bitcoin price made some holders liquidate more assets. It is always unfortunate when one has to liquidate part of a portfolio. Real-life bills and other payments don’t wait for the next bull run, unfortunately. 

Another Dip and Rise

The amount of Bitcoin in exchange wallets began declining in April of 2019. At the time, the Bitcoin price broke $5,000 again and continued its uptrend. By the time $8,000 came around on May 16, just 2,030,270.624 BTC remained on exchanges. Not a steep decrease but it shows how these metrics are interlinked in interesting ways.

Fintoism Bitcoin in Exchange Wallets 2019 2020

The ongoing Bitcoin price action results in more BTC finding their way to exchange wallets. As of January 21, over 2,360,747 BTC is found on exchanges. That is the highest amount recorded to date, according to Glassnode Studio

One has to wonder how this will affect the future Bitcoin price. The current momentum indicates that one BTC will remain over 9,000. This can trigger another decrease in exchange balances, but it is not a guarantee.  

JP Buntinx
JP Buntinx
JP Buntinx is passionate about cryptocurrencies, fintech, blockchain, and finance. He currently resides in Belgium.


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