According to data from Glassnode platform, the number of BTC held on exchanges has been consistently decreasing, with the balance dropping to 2.26 million coins, reaching its lowest point since March 14, 2018 (1940 days ago).
Typically, there are two main reasons for the outflow of BTC from exchange addresses:
1. Exchanges typically hold users' assets in a centralized manner. When a trust crisis occurs, users tend to withdraw their BTC to their own wallets.
2. Traders, when not in immediate need of selling, withdraw BTC to their wallets for storage.
On the Glassnode platform, the Exchange Balance data is often considered to have a non-linear inverse correlation with BTC price and can be used as one of the factors to assess the medium to long-term price trends of BTC.
Generally, in the absence of black swan events, when the data shows a sharp decrease in exchange balances in the short term, BTC prices tend to rise. Conversely, when the data shows a sudden increase in exchange balances in the short term, BTC prices tend to decline.
However, it's important to consider the impact of black swan events and other external factors that may introduce noise into the data. After filtering out the noise caused by events like black swan occurrences, the Exchange Balance data becomes more reliable and useful for analysis.
For example, starting in November 2022, FTX exchange experienced a liquidity crisis that eventually led to its bankruptcy. During this period, due to the loss of trust in the exchange resulting from the bankruptcy, there was a significant outflow of BTC from exchange addresses in the short term. Meanwhile, BTC prices fluctuated within a range after a sharp drop. The “black swan event” in this case disrupted the correlation mentioned earlier and affected the reliability of using Exchange Balance data for analysis.