Bitcoin’s dwindling exchange reserves don’t pack the same bullish punch anymore

One of bitcoin’s $BTC$62,873.98 oldest and most enduring bullish signals is still making the rounds on social media even though it no longer carries the weight it once did.

For years, interpreting the amount of $BTC held in wallets controlled by centralized exchanges has been straightforward. A declining balance means investors are withdrawing coins to self-custody. Fewer coins available for sale on exchanges should, in theory, reduce selling pressure and support prices. This read has been treated as reliably bullish since bitcoin’s early days and the narrative persists today, according to blockchain analytics firm Santiment.

“Historically, sustained drawdowns in exchange supply have preceded multi-quarter bull phases.” Mark Zalan, the CEO of GoMining, the world’s largest tokenized retail mining platform, said in an interview. He declined, however, to put a date on when the bull cycle will begin. “Anyone who tells a journalist they know the exact turn is guessing with confidence, not forecasting.”

The metric, however, no longer carries the weight that it used to, not least because supply has been low for months even as bitcoin has languished at around 50% of its peak value. The interpretation is outdated, some industry observers say, because it does not account for the rise in institutional custody. The financialization of bitcoin through alternative investment vehicles has changed the market in ways that make the indicator unreliable.

“People always used to look at low exchange supply as a clear bullish sign,” said Eneko Knorr, CEO of Stabolut, a multicurrency, yield-bearing stablecoin platform. “We’ve had this super-low supply for over a year now. The market grew up, and a lot of that crypto just moved somewhere else – like staking, DeFi protocols to earn some yield, or big institutional vaults.”

Santiment noted on X that the supply of $BTC and ether (ETH) on exchanges has dropped to the lowest since 2017 and 2015, respectively, calling it one of the crypto’s “most encouraging signals for the long term.” According to Santiment’s chart, bitcoin’s exchange supply sits at 6.6% of its total circulating supply and ether’s at 4.3%.

“Bitcoin and ethereum are showing one of crypto’s most encouraging signals for the long term: coins are staying off exchanges,” Santiment said. “That means fewer coins are immediately available to sell, even after months of volatility.”

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