Why does the BTC balance on centralized exchanges continue to decline?

BTC appears poised to break its previous all-time high as prices surpass $18,000 for the first time since 2017. Meanwhile, plummeting exchange balances validate the narrative that investors are intent on hoarding BTC.

Bitcoin Market Health

BTC had another impressive performance this week, rising above $18,000 for the first time since December 2017 and approaching its all-time high. The week opened at $15,930, quickly rising to over $17,000, then to $18,000, and finally ending the 47th week at over $18,600.

Throughout Week 47, Bitcoin's on-chain fundamentals experienced a strong rise. GNI rose 6 points to 67 points, and all three sub-indices showed growth.

Network Health increased by 11 points throughout the week, with a final score of 67. The Network Activity subcategory performed particularly well, increasing by 13 points due to an increase in the number of active entities and the on-chain transaction rate.

Liquidity rose by 2 points, reaching a final score of 56 this week. Although the continuous withdrawal of Bitcoin from exchanges has led to a decrease in trading liquidity, trading liquidity has increased as the number of on-chain transactions has increased.

Sentiment, which ended up with a score of 68 this week, rose by 6 points. The Saving Behavior subcategory contributed the most to this increase, increasing by 24 points (140%), as BTC speculators slowed down their selling.

Glassnode Guide

This past week, the guide shot higher into the bullish quadrant, with solid gains seen in both GNI and price action.

Its solid position in bull market regime 1 is supported by strong on-chain fundamentals, continued growth in adoption, and impressive price gains over the past few weeks.

Additionally, BTC continues to significantly outperform the stock market, gaining nearly 17% over the past week compared to the 2% drop in the SPY index last week. This supports the narrative around a potential decoupling, which — if maintained — eliminates stock prices as a ceiling for Bitcoin’s growth.

Altcoin Overview

Performance relative to BTC

With the exception of BNB, major altcoins have performed well against BTC throughout Week 47. XRP has seen the biggest gain, increasing by nearly 50%, second only to Bitcoin.

Compared with other altcoins, BNB's performance is still poor. When other currencies in the market are thriving, BNB's market value has fallen to tenth place.

Performance relative to USD

In dollar terms, all major altcoins have seen gains over the past week — even BNB, despite losses against Bitcoin. XRP is up a whopping 73.9% this week.

LTC has also made its way back into the top ten over the past few months, from hovering at 12th place eight weeks ago to currently sitting at 6th place.

BTC exchange liquidity continues to decline

Since the beginning of 2020, the amount of BTC on exchanges has been on an almost continuous downward trend, falling by nearly 20% throughout the year. Since October, as the price of BTC has risen sharply, Bitcoin has been withdrawn from exchanges at a faster rate.

This is in stark contrast to the rapid rise in exchange balances during the 2017 bull run. Generally speaking, withdrawals from exchanges indicate that investors intend to hold BTC rather than plan to sell it in the near future. In contrast, less committed retail investors tend to keep their BTC on exchanges, ready to cash out at any time.

Therefore, many believe that this trend means that more investors are committed to long-term holding, rather than cashing out on the hype as retail investors. Therefore, the withdrawal of BTC from exchanges is a bullish sign for Bitcoin, indicating that investors believe that despite being close to all-time highs, the asset still has more room to grow.