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On October 20, 2020, the amount of Bitcoin (BTC) held at major exchanges fell below 2.5 million BTC for the first time in two years.

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Source: Glassnode.

Nexo co-founder Antoni Trenchev opined to Cointelegraph that this trend is driven by the world finally realizing that only Bitcoin offers sound monetary policy:

“[People are] slowly are realizing what some of us have known for a while — BTC is the only sound monetary policy right now and you cannot afford to depart from the best performing asset of the decade.”

He also noted that the community is resorting more to self-custody solutions, including platforms like Nexo, where they can “tax-efficiently borrow against their assets rather than selling them." Cointelegraph noted yesterday that the Bitcoin supply is currently diffused more than ever.

Alex Mashinsky, co-founder of the Celsius crypto lending platform, told Cointelegraph that the exodus will likely continue unless exchanges begin offering better terms to their customers:

"As long as exchanges refuse to give their clients more they will leave them and come to Celsius. We just crossed $2.7B in deposits since launch two years ago. We would not be growing so fast unless we did more to our customers than exchanges."
Source: Glassnode.

From the chart above, we can see that this swing has not impacted all exchanges equally. While balances at BitMEX and Bitfinex were decimated, decreasing by more than half, Binance has continued to accumulate additional funds. Coinbase’s coffers have remained mostly unchanged as well.

Source: Digital Assets Data.

The growth of DeFi may have also contributed to this trend. The amount of Bitcoin locked on Ethereum through wBTC and renBTC presently exceeds 130,000. Just a few months ago, these numbers were negligible. Another likely culprit is institutional adoption. Aside from the continuous growth of Grayscale’s Bitcoin Trust Fund, publicly-traded companies like MicroStrategy and Square began adding crypto assets to their treasuries.

The biggest losers: Exchanges that led the trend. Source: Cointelegraph, Glassnode.

It seems that there is either a general trend towards users withdrawing Bitcoin from custodial exchanges, or perhaps a few major exchanges are simply losing the trust of their customers. The latter may be a reasonable conclusion, as a mere three platforms (BitMEX, Huobi, and Bitfinex) were responsible for the bulk of the trend — their balances decreased by 390,000 BTC, making them accountable for almost 80% of the total decline.