Bitcoin Exchange Deposits Drop to 2016 Lows, Signaling a Shift Toward Personal Custody

• Bitcoin daily deposits to exchanges drop to 30,000 matching 2016 lows.
• Netflow-to-Reserve Ratio shows negative values, indicating Bitcoin outflows from exchanges and reduced market supply.
• Declining Bitcoin inflows and rising withdrawals signal tighter spot market conditions with potential price impacts.

Recent inflows of deposits to exchanges in the Bitcoin market have been exceptionally low. Daily deposited Bitcoins are, on average, only 30,000, the same as the lows in 2016. It is a decline from the 10 year average of 90,000 daily deposits and far off from the high of 125,000 daily deposits when Bitcoin reached $66,000. 

This trend suggests that investors prefer holding Bitcoin in personal wallets rather than preparing to sell on exchanges. Historically, such low deposit figures coincided with the start of significant rallies, indicating a potential supply shortage in the spot market.

Rising Preference for Personal Custody

The reduced inflow of Bitcoin to exchanges aligns with an increasing trend toward personal custody. Many investors opt to move their assets off exchanges. This reflects growing concerns about security and reliability. Events like the collapse of major trading platforms, such as FTX , have reinforced these fears. 

Investors now prefer direct control of their assets. They prefer to safeguard them in private wallets rather than exposing them to potential risks associated with centralized exchanges. This shift signifies a broader move toward long-term holding strategies and reduced market liquidity.

Netflow-to-Reserve Ratio Reflects Outflow Trends

The Netflow-to-Reserve Ratio highlights the ongoing outflows of Bitcoin from exchanges. This metric compares the net inflows and outflows relative to exchange reserves. Recent readings show pronounced negative values, indicating that Bitcoin is leaving trading platforms at significant rates.

Such trends were last observed at the end of the bear market when seasoned investors bought Bitcoin at around $17,000 from forced sellers. These consistent outflows contribute to a tightening supply on exchanges, potentially paving the way for stronger price movements in the future.

With fewer coins available for trading, the reduced supply on exchanges could intensify price volatility. While the current behavior reflects confidence among holders, the market remains highly sensitive to broader economic and regulatory factors. These shifts underscore the importance of monitoring Bitcoin flow patterns to gauge potential market outcomes.