Despite the boring price action of BTC in recent weeks, blockchain metrics are signaling that Bitcoin is gearing up for an imminent bull rally. Notably, according to data from CryptoQuant and Glassnode, the amount of BTC held on spot exchanges continues to decline.
Crypto analyst Willie Wu noted that this trend is an extremely optimistic signal for Bitcoin, as it reflects the increased demand for the asset and interest in using cryptocurrency as a store of value. Wu wrote on his Twitter:
When the volume of coins on spot exchanges drops, it is a sign that buyers are taking funds from the market and moving them into cold storage for HODLing. Right now, we are seeing the activity of new HODLers. The long-term outlook is very bullish.
Crypto Exchange Reserves, CryptoQuant Data
A decrease in the number of coins traded on spot exchanges may indicate traders moving to derivatives markets, but the flow of assets between the two niches (from the spot sector to derivatives exchanges) is also decreasing (according to CryptoQuant data):
The withdrawal of assets from derivatives exchanges to spot exchanges and hardware wallets may be intensified following news of CFTC lawsuits and Ministry of Justice to BitMEX.
The current stage of accumulation resembles 2017
The trend of BTC flows to spot exchanges corrected at the beginning of 2020, and this picture is already familiar to experienced traders. The fall in exchange reserves resembles the accumulation stage at the end of 2016, which in turn fueled the subsequent bull rally in 2017.
BTC balance on exchanges, data from Glassnode
Both similar milestones follow major industry events such as the prospect of crypto ETFs being created by billionaires Winklevoss in 2017 and the insane purchase of Bitcoin by business intelligence giant MicroStrategy in 2020. According to Wu, so far the market has not reacted to the bullish signals:
This is one of the few cases in my memory when fundamental indicators (blockchain data and indicators of activity of infrastructure players) are in the mode of taking off to the moon, but the market does not realize this. This will happen in 2021. I haven't seen such an opportunity since mid-2016.
DeFi Crisis Is Another Bullish Factor For Bitcoin
The depletion of BTC reserves on exchanges is an optimistic signal, however, some analysts speculate that this trend may be driven by the growing popularity of DeFi projects that have shaped the demand for tokenized Bitcoin and liquidity between markets.
It is noteworthy that this can also be interpreted as a bullish signal for the leading cryptocurrency, because users prefer to earn interest for storing BTC rather than taking profits. For example, the Ethereum blockchain contains Bitcoins worth almost $ 1 billion in the form of WBTC, and the tokenized version of BTC began to be in demand only at the end of June 2020:
Market Capitalization WBTC
Moreover, the DeFi hype seems to be easing. Token prices are falling and the total value of funds locked in DeFi protocols is decreasing:
Some observers speculate that profits generated in the DeFi sector or in the altcoin markets are being locked or looped in a leading cryptocurrency. If so, this process will be another supporting factor for Bitcoin's bull rally, which is approaching as the number of active participants in the BTC network grows.