Bitcoin exchange withdrawals rose to its highest level since 2022, despite the asset trading near record highs.
While current outflows remain below the accumulation peak in 2023, new withdrawal trends highlight changes in behavior in the way investors gain exposure to Bitcoin.
Demand from institutional investors is increasingly flowing through spot traded funds (ETFs) rather than direct purchases, and individual holders are the mainstay of on-chain accumulation.
Bitcoin net inflows reach the lowest level in years
According to data from CryptoQuant, the 14-day simple moving average (SMA) of the Bitcoin exchange’s net flow exceeded the neutral territory, bringing out 7,500 BTC over the past two weeks.
This figure represents a sharp decline from the weekly outflow of 20,000 BTC recorded during the 2022-2023 accumulation cycle, which was further exacerbated by the collapse of FTX. Still, it is at a higher level than any time of the bull market in 2021.
Still, CryptoQuant analyst OnchainSchool explained that current withdrawals indicate an increase in investors’ trust in their flagship digital assets. The analyst said:
“This trend continues despite Bitcoin’s recent record highs, indicating investors are withdrawing coins from exchanges despite prices still remain high. These actions usually reflect a decline in long-term value trust and short-term selling pressure, reinforcing the view that large holders continue to accumulate rather than distribute.”
Large currency outflows can occur simultaneously with bullish times as investors move coins to refrigerated warehouses to show long-term confidence.
However, in the early stages of 2021, fewer holders retreated to self-storage, leaving more liquidity on centralized exchanges. Once the first top appeared, investors began sending coins to the exchanges at record rates.
The net withdrawal amounts did not reach current levels until FTX went bankrupt two years later.
The supply tightness in the last cycle has slowed down, so short-term upside pressure tends to be limited even when demand is still strong.
This time, when Bitcoin was in the price discovery stage, coins leaked from the exchange at an unprecedented level.
Influx of ETFs absorbs supply
This pace of withdrawal highlights a major shift in the behavior of investors who choose to have ETF exposure over direct ownership of Bitcoin. On the other hand, individual traders are more likely to be more willing to remove assets from exchanges, and perhaps even move to ETFs.
As a result, short-term BTC holders’ unrealized gains rose to 10%, with digital asset prices exceeding $126,000 on October 6th, coinciding with a surge in institutional investors into US spot Bitcoin ETFs.
According to SoSoValue data, 12 US-listed funds recorded an inflow of around $1.2 billion on the same day, marking the second-largest profit for a single day since its establishment.
Since early September, cumulative inflows have exceeded $5 billion, highlighting the depth of the role of traditional finance in the Bitcoin liquidity ecosystem.
Bitcoin analyst Sean Edmondson said:
“The purchases of US Spot BTC ETFs are totally out of line, both at the rate yesterday and at the 5-business day rate. These are truly eye-opening numbers.”
These ETF vehicles currently hold a total of over 1.3 million BTC, serving as the main channel of institutional accumulation.
In previous bullish cycles, similar influx would have flowed to exchanges for sale, cold storage, or DeFi protocols. They are now inflowing into regulated storage products, and the effects of rarity from once intensified price hikes have been somewhat mitigated.
This new balance, robust ETF demand offset by weak on-chain accumulation, has made Bitcoin’s current rise appear more orderly than in previous cycles. Still, macro headwinds such as tensions in the US budget and changing interest rate cut expectations could quickly change flow situations.
If ETF inflows continue, it could absorb up to twice the amount of Bitcoin issued per day, and the momentum of the rise could revive without the large-scale exchange withdrawal. However, if the exchange has some liquidity, while capital inflows slow, the well-known “supply tightness” story could remain slept until the end of the year.
If the pace of outflows accelerates further alongside the strong ETF inflow, supply tightness could reach “God’s candle” levels by the end of 2025.
(Tag Translation)Bitcoin
