While Bitcoin’s price nosedived by 17% on Monday, at press time, it had recovered considerably, with the cryptocurrency noting gains of 10.82% in a single 24-hour window. These statistics are not enough, however, considering Bitcoiners’ activity on exchanges – their buying and selling patterns, their compulsions, and their withdrawal capacity.
Along those lines, Bitcoin exchange withdrawals recently hit an 18-month high of 2742.33. The previous high was observed on 5 January, earlier this week. Besides withdrawal, the change adjusted transaction volume surged to an 18-month high. The increased withdrawal and transaction volumes may also have a negative impact on Bitcoin’s price, something on-chain analysts are debating right now.
BTC Number of Exchange Withdrawals || Source: Glassnode
Though institutional buying and demand on exchanges are being generated, the withdrawals and the increased intensity of withdrawals may lead to the retracement that has been anticipated since the price crossed $30,000.
Whenever there is price discovery in unchartered territory, there is anticipation around a possible price drop. Though a number of withdrawal metric points to the same, the positive here is that only mid-level retailers are selling, while whales are HODLing on at the moment. Similarly, institutions have kept up the consistent buying.
This combined effect of the two may lead to further price rise, rather than contribute to the anticipated price drop. The trade volume and network volatility have come up as the top two driving factors in the current price rally. However, the number of exchange withdrawals highlights the Bitcoin reserves and that is the number one driving factor of the current price rally.
When exchange reserves dropped to their lowest back in October 2020, the price rally gathered momentum and institutional investors lined up to buy. A 171% volatility surge in the last quarter of 2020 gave this rally a boost, however, in the current situation, the number of exchange withdrawals may not be in line with this narrative. The trade intensity is dropping, against rising exchange withdrawals, and this signals an incoming drop.
In fact, inflows to fiat exchanges have risen at the same time, and it could point to traders selling Bitcoin for high-performing altcoins. Altcoins like Chainlink and Stellar Lumens, for instance, have registered higher returns over the past week and in the last two days. This could motivate traders to exchange Bitcoin for cheaper alternatives while booking quick profits.