Investors are rapidly moving their Bitcoin into self-custody, suggesting they’re unlikely to exit their positions any time soon.
It’s been a rocky few months in Bitcoin and the wider crypto market. Following the collapse of FTX last year, the US Securities and Exchanges Commission (SEC) has waged an all-out war against the crypto industry, taking major enforcement actions both Binance and Coinbase.
The SEC has labelled more than 60 cryptocurrencies as securities, including BNB, SOL and ADA, subjecting them to risk of delisting, but Bitcoin has fortunately eluded the category.
The supply of Bitcoin on exchanges has plummeted.
New data released by Santiment reveals that the supply of Bitcoin on exchanges has dropped to its lowest level since February 2018, with investors moving their BTC from exchanges into self custody. Just 6.4% of Bitcoin is now on exchanges, compared with 16% in 2020.
“As long as these SEC lawsuits loom, this trend should continue,” Santiment tweeted.
The numbers show that investors have no intentions of exiting their positions any time soon, even in the face of a hostile regulatory landscape. (Some might say particularly in the face of a hostile regulatory landscape.) Indeed, by withdrawing BTC into self-storage, investors exhibit an encouraging display of long-term trust in Bitcoin while trust in centralised exchanges plummets.
A reduced supply of Bitcoin is likely to keep selling pressure at bay, but short term positions remain difficult predict. The same chart shows that the last time Bitcoin supply was as low as it is today, price action was significantly lower. A key difference between 2018 and today though is the regulatory landscape.
The SEC’s allegations against Binance and its CEO, Changpeng Zhao, carry serious implications. Of the 13 charges, some of the most serious relate to money laundering, market manipulation, and securities law violations.
Speculation is growing that the Department of Justice may have already filed a criminal indictment against the exchange, hinting at a forthcoming onslaught on the broader crypto sector. These external forces, coupled with the SEC’s actions, have created an environment of intense caution and uncertainty.
Regulators are more interested in altcoins than Bitcoin.
Regulators have however been less interested in Bitcoin and more interested in altcoins. The latest Binance lawsuit brings the number of cryptocurrencies the SEC views as “securities” to more than 60, including BNB, BUSD, SOL, ADA, MATIC, ATOM, SAND, MANA, AXIS and COTI.
This is partly down to the way each network operates.
The SEC defines a security as a tradable financial instrument that represents ownership, investment interest, or a right to a share in profits of a company or entity. Some proof-of-stake coins, including SOL and ADA, involve staking with the expectation of profit-sharing, which is admittedly a characteristic of a security. (This interpretation of this however is still very much circumstantial and subjective.)
There are several reasons why Bitcoin, as a proof-of-work cryptocurrency, doesn’t meet this criteria. Unlike some PoS coins, Bitcoin is truly decentralized, and its value is primarily determined by market forces and not by the efforts of a centralized entity. While PoS coins are designed to be decentralised, some networks (such as Solana) have a relatively small number of validators within the network, which may undermine the extent to which the network is truly decentralised.
In addition, Bitcoin’s initial distribution wasn’t through an ICO or fundraising mechanism associated with traditional securities offerings.
So, while the SEC stomps its iron boot on the crypto industry, investor activity shows there is one safe haven to be found, and that’s Bitcoin.
Disclaimer: CryptoPlug does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.