Self-custody continues to grow as Bitcoin withdrawals outpace deposits

Exchange-related Bitcoin deposits and withdrawals are often a good indicator of market sentiment.

An increase in the number of exchange deposits indicates that the liquid supply of Bitcoin is increasing and the market is ready for trading. Conversely, when the number of withdrawals on an exchange increases, investors seem less interested in trading and try to keep BTC away from the exchange.

Looking at these exchange-related trades against the total number of bitcoin trades can indicate whether the market is gearing up for a bull run.

In February 2023, the total number of Bitcoin transactions will surpass 307,000, reaching a two-year high. crypto slate show,

Previous transaction peaks were correlated with Bitcoin price increases. His 400,000 trades recorded in late 2017 spurred a bull market that pushed Bitcoin to his $20,000 all-time high. About 80% of all Bitcoin transactions at the time were exchange-related, the majority of which were exchange deposits.

The subsequent surge in transaction numbers followed the same pattern. An increase in transaction numbers spurred a bull market, which entered a correction as transaction numbers peaked. Both foreign exchange deposits and withdrawals showed a notable increase, with deposits exceeding withdrawals.

The previous high number of trades recorded in early 2021 repeated this pattern. However, bitcoin’s price has started to rise even after the number of transactions peaked, indicating that the bull market experienced throughout the year was fueled by derivatives.

Since 2014, the dominant trend has been for exchange deposits to exceed withdrawals. This trend broke for him in September 2022, when he had 53,000 BTC withdrawn and 52,000 BTC deposited on the exchange.

This trend has only grown stronger since the fall of FTX. In November, withdrawals reached his 81,000 BTC as investors raced to take coins from centralized exchanges. On February 11, 44,000 BTC were deposited on the exchange and 61,000 BTC left the exchange. A discrepancy between withdrawals and deposits indicates that the investor continues to own the coins won during the bear run.

The declining dominance of exchange trading further confirms this, with less than 35% of all bitcoin transactions in February being exchange-related.

The illiquid supply of Bitcoin has increased significantly as large numbers of BTC are now being pulled off exchanges. Simply put, the liquidity of the Bitcoin supply is a measure of how many coins you can actually buy and sell. A rise in illiquid bitcoin (i.e. coins in cold storage or dormant) is often seen as a strong bullish signal as it indicates strong investor holding sentiment.

Data analyzed by crypto slate It showed a sustained increase in the illiquid supply of Bitcoin starting in September 2021.