Using data up until July 19, Glassnode found that more Bitcoin has entered exchanges this month than has left it. This bucks the trend of more Bitcoin leaving exchanges than entering it.
That the trend is reversing is significant: In March, the month of the coronavirus-inspired market crash that cut the price of Bitcoin almost in half, around 92,000 Bitcoin flowed out of exchanges. That’s the largest amount drained from exchanges in a single month—or, as Glassnode itself put it in report from May, “the largest and most prolonged BTC exchange balance downtrend in Bitcoin’s history.”
At the time, Glassnode took it as a potentially bullish sign for Bitcoin. Investors, it said, could have been “withdrawing funds from exchanges to hold in cold storage, implying a longer-term outlook.” That the inverse is now happening could then be interpreted as a bearish signal, though the analysts Decrypt spoke with said there’s more to it than that.
“As talk around ‘alt season’ intensifies it’s possible that BTC that was taken off exchanges is now moving back to [be converted into altcoins],” Simon Peters, a market analyst at trading site eToro, told Decrypt.
Pedro Febrero, an analyst at Quantum Economics, agreed. He told Decrypt that “It seems traders are moving from BTC into altcoins,” citing evidence from CoinMarketCap that shows how Bitcoin dominance has fallen about 3%, from about 64% to 61%.
“Therefore, it makes sense the netflows of Bitcoin to exchanges start to pump again, as most investors and traders use exchanges to switch from BTC into alts,” he said.
Why the move into alts? Peters suggests it’s due to the rise of DeFi tokens, such as COMP, the governance token of DeFi lending protocol Compound, which came out earlier this month and was listed on Coinbase.
DeFi means decentralized finance, and it refers to the gamut of non-custodial financial products, such as decentralized lending, borrowing and stablecoins. Stablecoins are cryptocurrencies that are pegged to the value of some other asset, like the US dollar.
DeFi protocols have boomed this month. In fact, the market cap for DeFi increased by a staggering $1 billion in the past two weeks alone, a 33% increase. Most of the DeFi protocols are based on Ethereum, giving traders a reason to pump Bitcoin into exchanges and convert them to DeFi tokens.
He also pointed to the rise of stablecoins. USDT’s market cap broke past $10 billion this month, and USDC surpassed $1 billion. “We may see some of this liquidity also move into BTC and alts,” he said.