Bitcoin on Exchanges Plunges as Investors Shift to Self-Custody

Bitcoin (BTC) reserves on exchanges have fallen to their lowest levels in years, reflecting a growing trend among investors toward self-custody as the cryptocurrency continues to surge.

Bitcoin exchange reserves have plummeted to 2.6 million in CryptoQuant data that goes back to December 2021. That’s a 19% decline from 3.6 million, the all-time high since then, recorded in June 2022.

In the past month alone, holders have withdrawn over 171,000 BTC from exchanges, with withdrawals picking up after Donald Trump claimed victory in the U.S. presidential election on Nov. 5.

The high-volume withdrawals highlight shrinking liquidity on centralized platforms such as Coinbase and Gemini.

Specifically, Coinbase Advance held 1.3 million BTC reserves in December 2021, but as of November only retains about 832,000, a 36% decline. Meanwhile, Gemini held as many as 315,000 BTC reserves in March 2022, but now only holds around 128,000, a 59% drop.

"To put it simply, investors are bullish,” said Ryan Grace, head of self-custody wallet company Tastycrypto.“People are more interested in holding tokens off-exchange, presumably in self-custody, in anticipation of higher prices in the future, instead of in an exchange account where their crypto is readily available for sale.”

Self-custody refers to when customers maintain complete control and ownership of their assets via their private keys, with the service provider serving only as an interface to help manage the assets more conveniently.

Grace explained that when tokens are moving from exchanges to self-custody, it tends to be a bullish sign as there’s less supply to be sold to cash out.

In contrast, when tokens are transferred from cold storage or self-custody to exchanges, this is often a sign of impending sell pressure and subsequently lower price action.

Bitcoin's price has skyrocketed by 124% this past year, jumping from $45,000 in January to an all-time high of $103,700 late Wednesday night. BTC has since dropped by 0.6% to $101,000, where it maintains around a $2 trillion market cap.

The upwards trajectory has attracted more investors looking for long-term gains and as a result, more Bitcoin is being taken off exchanges and held in private wallets, experts say. Not only does this indicate increasing confidence in Bitcoin's future, but also a preference for securing assets outside of centralized platforms like Coinbase.