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The withdrawals of Bitcoin from exchanges have reached their highest consistent levels since 2022, even as its trading price approaches record highs.
While current outflows trail behind the accumulation peak seen in 2023, this resurgence in withdrawals underscores a change in how investors are interacting with Bitcoin.
Institutional interest is increasingly being routed through spot exchange-traded funds (ETFs) instead of direct purchases, leaving retail investors primarily responsible for on-chain accumulation.
Bitcoin netflows at multi-year lows
Data from CryptoQuant reveals that the 14-day Simple Moving Average (SMA) of Bitcoin exchange netflows has transitioned past neutral territory, showing a withdrawal of 7,500 BTC over the last fortnight.
This figure marks a significant drop from the 20,000 BTC weekly outflows observed during the 2022–2023 accumulation period, intensified by the FTX collapse. However, it remains higher than any period in the 2021 bull market.
Still, CryptoQuant analyst OnchainSchool noted that the current withdrawal patterns indicate a growing confidence among investors in Bitcoin as a leading digital asset. The analyst stated:
“This trend persists despite Bitcoin achieving a new all-time high, suggesting that investors are taking coins off exchanges even while prices are elevated. This behavior typically signals confidence in long-term value and diminished short-term selling pressure, reinforcing the perception that large holders are more focused on accumulation than distribution.”
Significant exchange outflows can coincide with bullish trends, as investors transfer their assets into cold storage, indicating long-term confidence.
Conversely, during the initial 2021 surge, fewer holders withdrew for self-custody, keeping more liquidity on centralized platforms. After reaching the first peak, a surge of coins began moving back to exchanges.
The current level of net withdrawals wasn’t seen until the FTX collapse two years later.
The last cycle experienced a gentler supply squeeze, leading to limited short-term upside pressure even amid strong demand.
Currently, coins are exiting exchanges at unprecedented rates while Bitcoin goes through a price discovery phase.
ETF inflows absorb supply
The pace of withdrawals indicates a notable shift in investor behavior, with many preferring ETF exposure over direct Bitcoin ownership. Meanwhile, retail investors seem more inclined to withdraw their assets from exchanges, potentially shifting some of them into ETFs.
Consequently, the unrealized profits of short-term BTC holders have climbed to 10% as the digital asset trades above $126,000 on October 6, aligned with a surge in institutional flows into US spot Bitcoin ETFs.
According to SoSoValue data, the 12 US-listed funds reported around $1.2 billion in inflows that day, noting their second-largest single-day increase since launch.
Since early September, total inflows have exceeded $5 billion, emphasizing the increasing presence of traditional finance within Bitcoin’s liquidity ecosystem.
Bitcoin analyst Shaun Edmondson commented:
“These inflow numbers from US Spot BTC ETFs are extraordinarily high, both for yesterday and over the five-business-day period. These figures are truly remarkable.”
These ETF products now collectively possess more than 1.3 million BTC, acting as the primary avenue for institutional acquisitions.
In previous bull cycles, similar inflows would typically funnel onto exchanges for selling, cold storage, or DeFi protocols. Today, they are directed towards regulated, custodial products, somewhat easing the scarcity effect that once heightened price surges.
This new equilibrium, characterized by strong ETF demand countered by weaker on-chain accumulation, has made the current Bitcoin rally feel more stable than in previous cycles. Yet, macroeconomic challenges, including US budgetary issues and shifting expectations on rate cuts, could quickly disrupt these flow dynamics.
If ETF inflows continue, they could potentially absorb up to twice the daily Bitcoin issuance, invigorating upward momentum without the necessity of major exchange withdrawals. On the other hand, if inflows decelerate while some liquidity remains on exchanges, the well-known “supply squeeze” narrative may stay dormant until the year’s end.
Should outflows accelerate further, in conjunction with robust ETF inflows, a supply squeeze could indeed reach ‘god candle’ levels before 2025 concludes.
