In a significant development, data from CryptoQuant on September 20 reveals that Bitcoin (BTC) holdings on major crypto exchanges, including Coinbase, Binance, and Kraken, have reached a near six-year low. This contraction in exchange reserves comes when the broader crypto market has stabilized after enduring substantial losses throughout August and the first half of September. As of September 20, BTC prices remain below $30,000, characterized by sideways movement in recent weeks.
At present, these exchanges collectively control approximately 2.09 million BTC. It’s crucial to note that the Bitcoin network is designed to issue 21 million coins. However, as of 2023, over 19.7 million of these coins are already in circulation, with notable investments from public firms like Tesla and MicroStrategy. Cryptocurrencies can be held in non-custodial wallets or on exchanges such as Binance or Coinbase. Exchanges offer custodial wallets, allowing users to store their coins for trading or long-term “HODLing,” and providing easy access for swapping into USDT or other altcoins. Despite the reduction in coins held on exchanges, more is needed to guarantee a price recovery.
Historically, a decrease in exchange coin outflows has signaled a strengthening market and anticipation of price growth. However, given the current regulatory climate, traders and Bitcoin holders increasingly opt to have full control of their assets as concerns over regulatory actions mount.
As a result, more holders are securing their coins in non-custodial wallets, potentially explaining the decline in Bitcoin exchange reserves. The trend of declining exchange reserves has been observed throughout 2022 but accelerated notably in late 2022. During that period, the collapse of FTX, a popular crypto exchange, resulted in the locking of billions of dollars worth of clients’ funds.
Although outflows slowed down in Q1 2023 following the collapse of some regional banks in the United States, the trend has continued its descent. This decrease can be attributed to the ongoing bear market but is primarily influenced by the United States Securities and Exchange Commission (SEC) taking a more assertive stance towards exchanges like Binance and Coinbase, accusing them of non-compliance.
In June, both Binance and Coinbase faced legal action from the SEC, with the regulator alleging that these exchanges were involved in issuing unregistered securities, citing examples like Cardano (ADA). In the wake of this regulatory crackdown, Binance US experienced significant turmoil, including major staff resignations, layoffs, and operational disruptions, resulting in a staggering 95% drop in trading volume.
The dwindling Bitcoin exchange reserves and the regulatory turbulence in the crypto space raise questions about the future landscape of digital asset trading and custody. Investors and traders closely monitor developments in this dynamic industry, with regulatory compliance and asset security becoming paramount concerns.
