Self-storage continues to grow as Bitcoin withdrawals outpace deposits

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

As the number of exchange deposits grows, the liquidity supply of Bitcoin grows and shows the market’s readiness to act. Conversely, when the number of withdrawals of exchanges increases, investors seem less interested in trading and want to keep BTC off exchanges.

Looking at these exchange-related transactions against the total number of Bitcoin transactions can show whether the market is preparing for a bull run.

In February 2023, the total number of Bitcoin transactions passed 307,000, reaching a two-year high, data analyzed by CryptoSlate shows,

Peaks in past transaction numbers correlated with Bitcoin’s price gains. The 400,000 transactions recorded at the end of 2017 helped fuel the bull run that pushed Bitcoin to a record high of $20,000. Around 80% of all Bitcoin transactions at the time were exchange-related, and most were exchange deposits.

Subsequent jumps in transaction numbers followed the same pattern – an increasing number of transactions fueled a bull run that entered a correction when transaction numbers peaked. Both exchange deposits and withdrawals saw noticeable increases, with deposits exceeding withdrawals.

The previous high transaction number recorded in early 2021 repeated the pattern. However, Bitcoin’s price began to rise even after the number of transactions peaked, indicating that the bull run throughout the year was driven by derivatives.

Since 2014, the dominant trend has been for exchange deposits to exceed withdrawals. This trend was broken in September 2022, when withdrawals exceeded deposits – in September 2022, 53,000 BTC were withdrawn and 52,000 BTC were deposited to exchanges.

This trend has only gotten stronger since the collapse of FTX. In November, withdrawals reached 81,000 BTC as investors rushed to take their coins from centralized exchanges. On February 11, 44,000 BTC were deposited into exchanges, while 61,000 BTC left exchanges. The discrepancy between withdrawals and deposits shows that investors continue to take ownership of the coins they acquired during the bear run.

The declining dominance of currency transactions further confirms this – less than 35% of all Bitcoin transactions in February were exchange-related.

With a large number of BTC now being removed from exchanges, Bitcoin’s illiquid supply has seen significant growth. Simply put, the liquidity of Bitcoin’s supply shows the number of coins that are actually available for purchase and sale. An increasing number of illiquid Bitcoins (ie coins in cold storage and dormant coins) is often seen as a strong bullish signal as it shows strong investor holdings.

Data analyzed by CryptoSlate showed a sustained increase in Bitcoin’s illiquid supply beginning in September 2021.