Crypto analysts on X (the social media platform formerly known as Twitter) and in YouTube interviews have been abuzz with talk about the trend of Bitcoin leaving centralized exchanges.
On Aug. 29, the quantity of Bitcoin (BTC) held within exchanges saw a decline, reaching its lowest point since January 2018. While various factors might underlie this movement, experts analyzing blockchain data often interpret the shift as a positive indicator. Traders are now questioning what might have been causing Bitcoin’s inability to break above $31,000 since this price action doesn’t align with their view that fewer coins on exchanges is bullish for the BTC price.
The perspective on the decline of Bitcoin held at centralized exchanges stems from the notion that when traders withdraw their coins, it signals a bullish sentiment. This is typically associated with a strategy of holding assets in self-custody for the long haul.
Although these suppositions lack conclusive evidence, their persistence likely stems from historical precedent. However, establishing a relationship between these events and a specific cause remains elusive, regardless of the frequency of such occurrences. While selling on exchanges might necessitate depositing fiat currency beforehand, the reverse is not necessarily true.
Data fails to show correlation between on-chain metrics and Bitcoin price action
Data from blockchain transactions displays a consistent reduction in Bitcoin deposits on exchanges since mid-May. Concurrently, Bitcoin’s price trajectory fails to offer substantial indications of a bullish upswing, with the exception of a brief surge in mid-June that coincided with BlackRock’s submission of an application for a spot exchange-traded fund.
It’s worth noting that the period encompassing a 30% surge from March 12 to March 19 witnessed an increase in deposits on exchanges, contrasting the predictions of on-chain analysis. Despite this contradiction, instances of influencers addressing the weaknesses in these enduring myths are scarce. This could be attributed to the simplicity of linking deposits on exchanges to an augmented inclination for selling.
Certainly, all indicators are prone to occasional inaccuracies, and depending solely on on-chain analysis to dictate market trends is unwise. Yet, the notion that withdrawals from exchanges are predominantly earmarked for transfer to cold storage lacks substantial…
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