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Bitcoin’s supply on exchanges has plummeted to its lowest level since 2018, driven by rising institutional demand and increased long-term holding.
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Institutional investors are increasingly shifting assets to custody solutions, reducing Bitcoin’s liquidity on public exchanges and signaling a tightening supply.
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According to COINOTAG, “The sustained withdrawal of Bitcoin from exchanges reflects growing caution among investors and a strategic move towards self-custody.”
Bitcoin’s exchange supply falls below 11% amid institutional adoption and trust issues post-FTX, indicating a potential supply shock and increased long-term holding.
Bitcoin Exchange Supply Hits Multi-Year Low Amid Institutional Accumulation
Bitcoin’s percentage of total supply held on exchanges has dropped below 11%, the lowest since March 2018, according to Glassnode data. This decline represents a significant shift in market dynamics, as investors increasingly withdraw BTC from centralized platforms. The trend is largely attributed to institutional accumulation and a preference for cold storage solutions, which reduce the circulating supply available for trading. Over the past five years, more than 1.26 million BTC have been moved off exchanges, tightening the market’s liquidity and potentially setting the stage for future price appreciation. This phenomenon underscores a growing confidence in Bitcoin’s long-term value proposition and a strategic move away from short-term speculative trading.
Long-Term Holding Surges as Exchange Flows Decline
Data from CryptoQuant reveals that the Exchange Flows to Network Activity Ratio has fallen to its lowest point since early 2023, indicating subdued BTC deposits on exchanges despite recent price rallies. The 30-day moving average of this ratio currently hovers near 1.2, significantly below its annual average and approaching negative one standard deviation. Historically, such low readings correlate with periods of strong conviction among long-term holders, who prefer securing their assets in cold wallets rather than exposing them to exchange risks. This behavioral shift reduces the available supply on exchanges, which may constrain selling pressure and contribute to increased price stability or upward momentum as demand persists.
Institutional Custody Solutions Drive Bitcoin Withdrawals from Exchanges
The rise of institutional custody platforms is a critical factor behind the declining Bitcoin supply on exchanges. Major financial institutions, including BlackRock, Fidelity, and Franklin Templeton, increasingly utilize third-party custodians to securely hold digital assets, bypassing traditional exchange wallets. For instance, Coinbase Prime reported over $212 billion in assets under custody in Q1 2025, fueled by inflows from ETF issuers, corporations, and high-net-worth individuals. Conversely, Coinbase’s retail exchange experienced significant BTC outflows, exceeding $500 million in the same period. This divergence highlights a growing preference among institutional investors for regulated custody solutions that offer enhanced security and compliance, further reducing the volume of Bitcoin readily available on public exchanges.
Spot Bitcoin ETFs Amplify Institutional Demand
Spot Bitcoin ETFs have emerged as a major vehicle for institutional Bitcoin exposure, with assets under management soaring from approximately $1 billion at their launch in early 2024 to $44.54 billion by June 2025. This rapid growth reflects increasing institutional confidence and a strategic allocation of capital into digital assets. Supporting this trend, a 2025 survey by Coinbase and EY-Parthenon found that 83% of institutional investors plan to increase their crypto holdings, with nearly 60% allocating over 5% of their assets under management to cryptocurrencies. Additionally, over 60 public companies collectively control more than 3% of Bitcoin’s total supply, underscoring the expanding institutional footprint in the market.
Post-FTX Collapse: Eroding Trust in Centralized Exchanges
The collapse of FTX in late 2022 marked a pivotal moment for Bitcoin exchange flows, triggering sustained outflows from centralized platforms. Glassnode data illustrates that from November 2022 through mid-2023, weekly BTC withdrawals from exchanges frequently exceeded 10,000 coins, totaling over 200,000 BTC removed during this period. This exodus reflects a profound erosion of trust in centralized exchanges, prompting investors to prioritize self-custody and decentralized alternatives. The shift has accelerated the migration of Bitcoin into private wallets and institutional custody solutions, reshaping the ecosystem’s liquidity dynamics and emphasizing security and transparency as paramount concerns for market participants.
Implications for Market Liquidity and Price Dynamics
The ongoing reduction of Bitcoin supply on exchanges has significant implications for market liquidity and price behavior. With fewer coins available for immediate trading, the market may experience increased volatility during periods of heightened demand or sell-offs. However, the accumulation by long-term holders and institutions could also support price resilience by limiting the supply shock potential. Investors should monitor exchange balances alongside on-chain metrics to gauge market sentiment and anticipate possible price movements. The evolving custody landscape and regulatory environment will continue to influence these dynamics, making it essential for market participants to stay informed and adapt their strategies accordingly.
Conclusion
Bitcoin’s declining supply on exchanges, driven by institutional adoption and cautious investor behavior post-FTX, signals a tightening market with reduced liquidity. This trend reflects growing confidence in Bitcoin’s long-term value and a strategic shift towards secure custody solutions. While this may constrain short-term trading volumes, it also sets the stage for potential supply-driven price appreciation. Market participants should closely watch exchange balances and institutional flows to navigate the evolving landscape effectively.
