Starting March 2020, Bitcoin held by exchanges has been on a downtrend. For much of that time, prices have been doing the exact opposite and heading upward. At current levels, Bitcoin is at a 2 year low. Analysts believe that if this trend persists exchanges will experience a liquidity crisis.
In general, Bitcoin being withdrawn from exchanges is perceived as bullish. It is assumed that the investor plans to hold for the long term. They are bullish and withdrawing pushed demand higher than supply on the exchange. The opposite is true when Bitcoin is deposited in exchanges. This shows intent to sell, in case of large deposits, this easily triggers sell-offs.
For the last couple of months, the market has been bullish. As a result, more and more investors have been withdrawing Bitcoin to hold in their private wallets. Especially with analysts still adamant that Bitcoin could reach highs of $100K by the end of the year, investors, most of whom weathered the 3-year bear market, are ready to hold out for another couple of months.
The massive withdrawal has itself been a positive indicator. According to Danny Scott, CEO of BTC exchange CoinCorner and market analyst, the current trend mirrors that seen in the 2017 bull run. Scott commented on Twitter that the only other time there was a 6-month consistent drop in exchange liquidity was in 2017.
The only time exchange #Bitcoin balances dropped for a consistent period was 6 months in the build-up to the 2017 bull run.
We’ve now passed 12 months and it’s dropping significantly.
How is Bitcoin Set To Play Out?
This makes it clear that the current market sentiment is much stronger than that of 2017. Furthermore, it is proof that Bitcoin is not done yet and might easily double to reach the expected $100K price tag by the end of the year. The sentiments come as no surprise with one of the main reasons for the massive withdrawals being institutional demand. As long as this stays high, exchanges will continue to see their reserves hit new lows.
As the month comes to an end, there is mixed sentiment whether the worlds largest digital asset is bullish or bearish in the short term. On one hand, it has closed the last 20 days above $50K which is positive. However, it has been unable to break above its new high of $61K. According to Danny Scott, the asset is targeting $83K in April.