Report: Bitcoin inflows to exchanges exceed outflows for the first time since January

In short:

• More Bitcoin has flowed into cryptocurrency exchanges this month than left.

• This was the first reversal of a nearly six-month trend since the beginning of 2020.

• Is this a bearish signal? Analysts say traders may be looking to swap Bitcoin for altcoins.

For the first time since January, the amount of Bitcoin flowing into cryptocurrency exchanges exceeded the amount flowing out of them, according to data from a new report from Glassnode.

Glassnode found that the amount of Bitcoin entering exchanges this month has exceeded the amount leaving exchanges, according to data as of July 19. This reverses the trend of Bitcoin leaving exchanges rather than entering exchanges that has continued this year.

That trend is reversing is significant: In March, the year the coronavirus-inspired market crash saw Bitcoin’s price drop by nearly half, roughly 92,000 BTC left exchanges. That’s the largest amount of money that has left exchanges in a month, or, as Glassnode itself put it in a May report, “the largest and longest streak of declining BTC exchange balances in Bitcoin history.”

At the time, Glassnode saw this as a potential bullish sign for Bitcoin. The firm said that investors may have been “pulling funds from exchanges and storing them in cold wallets, implying a bullish outlook for its long-term prospects.”

While analysts say the reversal currently taking place could be interpreted as a bearish sign, there is more to it than that.

So what caused the reversal? One answer: altcoins. Including Dogecoin, which has been promoted by TikTok users and Elon Musk, and saw double-digit percentage gains earlier this month.

“As talk of ‘altcoin season’ intensifies, there is now a risk that BTC that was lost to exchanges will return [and be converted into altcoins],” Simon Peters, market analyst at trading site eToro, told Decrypt.

Bitcoin net inflows from cryptocurrency exchanges. Image: Glassnode

Pedro Febrero, an analyst at Quantum Economics, agreed. He told Decrypt that “it seems that traders are rotating out of BTC and into altcoins,” citing evidence from CoinMarketCap showing how Bitcoin’s dominance has dropped by about 3%, from about 64% to 61%.

He said:

“So, with most investors and traders converting Bitcoin to altcoins via exchanges, it makes sense that the net flow of Bitcoin to exchanges would start to increase again.”

Why the shift to altcoins? Peters believes it’s due to the rise of DeFi tokens, such as COMP, the governance token for DeFi lending protocol Compound, which came out earlier this month and was listed on Coinbase.

DeFi refers to decentralized finance, which refers to the range of non-custodial financial products such as decentralized lending, borrowing and stablecoins. Stablecoins are cryptocurrencies pegged to the value of other assets such as the U.S. dollar.

DeFi protocols have been booming this month. In fact, the market capitalization of DeFi has increased by a staggering $1 billion, or 33%, in the past two weeks alone. Most DeFi protocols are based on Ethereum, which gives traders a reason to pump Bitcoin into exchanges and convert it into DeFi tokens.

Peters said “savvy crypto investors” may be investing in tokens that offer them high yields — a practice known as “yield mining” — by lending out cryptocurrencies for rewards or interest.

He also pointed out the rise of stablecoins. USDT’s market value exceeded $10 billion this month, and USDC exceeded $1 billion. He said:

“We may see some of this liquidity move into BTC and altcoins as well.”

This article is translated and published with permission from Decrypt.

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