In brief

  • Bitcoin's price is getting closer to the $20,000 mark.
  • Yet Bitcoin is being withdrawn in large amounts from major exchanges.
  • In light of past trends, this is particularly unusual.

Bitcoin’s price has been on a rapid-fire increase in recent months, breaking $18,000 today for the first time since December 2017.

For much of Bitcoin’s history, price increases have coincided with higher inflows of Bitcoin to major exchanges. When there’s a spike in price, there’s usually a spike in Bitcoin going to exchanges. Only this time around, we’re seeing the complete opposite.

“Previous price peaks have coincided with Bitcoin flows into exchanges (green), while this ongoing rally is occurring in an unprecedented period of net withdrawals from exchanges,” tweeted a pseudonymous Bitcoin analyst known as Typerbole.

If we look back at Bitcoin’s history, we typically see a correlation between price increase and the flow of Bitcoin into major exchanges. 

For example, during Bitcoin’s famous bull run at the end of 2017, the inflow of Bitcoin to all exchanges jumped from 3,087 Bitcoin to 38,402 Bitcoin in just 24 hours. 

Bitcoin Glassnode data
The relationship between Bitcoin price and net transfer volume to and from exchanges. Image: Glassnode

Another, more modest example is when Bitcoin deposits increased from 859 Bitcoin to 21,551 Bitcoin between June 15, 2019, and June 30, 2019. During the same period, Bitcoin’s price rose from approximately $8,300 to $10,800. There was a very strong relationship, either causal or casual, between exchange inflows and the rising price.

But not any longer.

This time around, Bitcoin’s price is not corresponding with people sending money to exchanges. Instead, Bitcoin is being withdrawn en masse from exchanges. Since this bull run began in August, the graph shows several significant drops in deposits. 

One example of this came between October 22 and October 27, when Bitcoin’s price increased from $12,900 to $13,600. During this time, Bitcoin withdrawals increased from 704 Bitcoin to 13,130 Bitcoin.

Then, on November 2, when Bitcoin was firmly in $13,000 territory, net withdrawals stooped to 26,997 BTC. 

However, these mass withdrawals are not a sign that confidence in Bitcoin is low. Bitcoin’s price is up 154% in 2020 alone, so there is little doubt that the market is currently bullish on Bitcoin. And many analysts are now proclaiming this as a positive sign.

“Balance on exchanges just keeps going lower. Great sign,” tweeted Bitcoin analyst Cole Garner.

Lucas Huang, head of growth for decentralized exchange Tokenlon, explained to Decrypt, “People hold BTC on exchanges when they plan to sell. Therefore, the large amounts of BTC being withdrawn and smaller amounts in deposits indicate a positive market sentiment.”

But why is this now bullish, in a way that it wasn’t before?