In glad tidings for an orange Christmas, Bitcoin (BTC) supply is drying up to lows not seen for years. In a recent tweet by CryptoRank, just 6.3% of the total Bitcoin supply, or 1.3 million BTC, is held on cryptocurrency exchanges.
The decreasing supply is nothing new, trending down since the Bitcoin halving in 2020 when the BTC block reward was cut in two. BTC availability on exchanges followed suit, slowly trending down over the past year. Exchange wallets accounted for 9.5% of the BTC supply in October 2020, just before the 2020 Christmas all-time highs, and 7.3% in July this year. The 6.3% December figure is the lowest recorded in 2021.
Interestingly, Coinbase’s BTC wallet dominance is also slipping. The American exchange used to custody more BTC than all other exchanges combined. Its dominance has slipped from 50.52% to 40.65% over the past year.
The news follows a swathe of positive price metrics that dovetail the upward price action of Bitcoin. Firstly, the illiquid BTC supply has iced over for the winter as the BTC supply going from a "liquid" to an "illiquid" state is now 100,000 BTC per month. In essence, more BTC is locked away into cold storage than the amount being mined.
Glassnode, the on-chain analytics company, shared further bullish news regarding exchange behavior. The seven-day moving average for BTC’s exchange inflow volume just reached a five-month low of 978.452 BTC and has been trending down week on week. The exchange supply shortage may continue with less and less BTC sent to exchanges.
Furthermore, it’s important to note that many retail investors and some companies store their BTC on exchanges, indicating that the "illiquid" BTC may be even lower. Some BTC hodlers would leave the custody of their keys to exchanges instead of taking their BTC offline into cold storage.
Unsurprisingly, Binance CEO and co-founder Changpeng Zhao has encouraged the hot wallet practice, despite the best efforts of Bitcoiners like Andreas Antonopolous ensuring "not your keys, not your Bitcoin" is part of everyday BTC mantra.
As a result, while 1.3 million BTC rests on exchanges, they may not be "circulating," and may, in fact, contribute to the illiquid supply.
Nonetheless, despite calls for a “Santa Rally” off the back of bullish analytics, the bears are not yet out of the woods. A tweet by BullRun Invest using Glassnode data shows that 24.6% of all BTC supply is sitting above the price of $47,000.
It suggests that roughly a quarter of the BTC bought at those price levels are currently underwater. If BTC fails to make progress into the 50s, there may be fewer presents under the tree tomorrow.