Bitcoin Exchange Reserves Hit New Lows, But the Bullish Signal Is Losing Strength

Bitcoin exchange supply hits multi-year lows, but the bullish signal has weakened

Blockchain analytics firm Santiment reported that Bitcoin’s available supply on exchanges has fallen to its lowest level since 2017, while Ethereum’s exchange supply has reached its lowest point since 2015. The firm noted that while this trend does not guarantee an immediate price surge, it could help establish the foundation for crypto’s next major bull cycle.

One of Bitcoin’s longest-running bullish indicators continues to attract attention across social media, even though its impact is no longer as powerful as it once was.

Historically, analysts have viewed declining BTC balances on centralized exchanges as a positive sign. When investors move coins away from exchanges and into private wallets, it suggests reduced selling pressure because fewer coins are readily available for trading.

This interpretation has remained a popular bullish narrative since Bitcoin’s early years, and Santiment says the trend still holds some significance.

“Historically, extended declines in exchange-held supply have often appeared before major multi-quarter bull markets,” said Mark Zalan, CEO of GoMining, the largest tokenized retail mining platform. However, he warned against making precise market predictions, saying anyone claiming to know the exact start date of the next bull cycle is likely guessing rather than forecasting.

However, the indicator has lost some of its previous influence because exchange balances have remained low for months while Bitcoin has struggled around half of its record high. Some industry participants argue that the metric has become outdated because it fails to consider the growth of institutional custody and the broader financialization of Bitcoin.

“Investors used to view low exchange supply as a straightforward bullish indicator,” said Eneko Knorr, CEO of stablecoin platform Stabolut. “But we have maintained extremely low supply levels for more than a year. The market has matured, and much of that Bitcoin has simply moved elsewhere — into staking, DeFi platforms, yield strategies, or institutional storage solutions.”

Santiment highlighted on X that Bitcoin and Ethereum exchange balances have fallen to historically low levels, describing the trend as one of crypto’s most promising long-term signals. According to the firm’s data, Bitcoin held on exchanges represents about 6.6% of circulating supply, while Ethereum’s exchange supply accounts for roughly 4.3%.

“Bitcoin and Ethereum are showing one of crypto’s strongest long-term signals: coins are leaving exchanges,” Santiment said. “This means fewer assets are immediately available for selling despite months of market volatility.”

Because Bitcoin and Ethereum represent nearly two-thirds of the overall crypto market capitalization, Santiment believes declining exchange supply could support the setup for another sustained bull phase. However, the firm emphasized that the market has not fully entered that stage yet. CoinGecko data shows the two largest cryptocurrencies together account for nearly 66% of the total crypto market.

Bitcoin’s market structure has evolved

The current crypto landscape is more complex than in previous cycles. Bitcoin leaving exchanges does not always mean it has moved into long-term cold storage. Some assets are converted into wrapped versions such as WBTC and deployed across decentralized finance platforms.

As a result, exchange balances may decline while Bitcoin exposure remains active through DeFi markets, where assets can still be traded, used as collateral, or lent out.

A similar shift has occurred with spot Bitcoin ETFs. When investor demand increases, ETF issuers purchase BTC through exchanges or over-the-counter markets and store those coins with institutional custodians such as Coinbase Custody, Fidelity Digital Assets, and BitGo.

Although this removes Bitcoin from visible exchange reserves, ETF shares continue trading actively on traditional stock markets, providing investors with liquid exposure to BTC.

The traditional exchange balance metric does not fully capture this growing institutional ecosystem. This limitation has become increasingly important as ETFs expand. Coinglass data shows U.S. spot Bitcoin ETFs hold approximately $73 billion in net assets, representing more than 641,400 BTC. Ethereum ETFs hold around $13.7 billion, equivalent to roughly 7.7 million ETH.

“The overlooked story is that this metric reflects the transition away from the exchange-custody era,” said Ben Nadareski, CEO of Solstice. “The important question is not only how much crypto leaves exchanges, but where those assets are going.”

According to Nadareski, assets are primarily moving into two areas: regulated institutional custody and productive on-chain positions.

Additionally, the idea that declining exchange balances always lead to bull markets is not guaranteed. During 2022, exchange supply remained relatively low even as Bitcoin prices experienced a major crash.

Long-term accumulation remains strong

Although exchange supply may no longer be a perfect bullish indicator, it still reflects a broader trend of Bitcoin accumulation among different types of investors.

“More than 130 publicly traded companies now hold Bitcoin on their balance sheets, while spot ETFs have continued absorbing BTC into regulated custody,” Zalan said.

Data from Bitcoin Treasuries shows that public companies hold approximately 1.26 million BTC, private companies hold around 281,752 BTC, governments hold about 649,954 BTC, and DeFi protocols hold nearly 369,595 BTC. ETFs and exchanges collectively account for roughly 1.62 million BTC.

The data also indicates that treasury companies hold approximately 7.25 million ETH.

When combined with nearly 7 million Bitcoin believed to be held in dormant wallets, almost 11.2 million BTC is currently outside active circulation. That represents roughly 56.5% of Bitcoin’s circulating supply of about 20.05 million coins.

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