Bitcoin Exchange Holdings Drop 11% as Institutional Demand Surges

Bitcoin on exchanges has dropped below the 11% mark, a level not seen since March 2018, according to Glassnode data. This decline reflects a significant shift in investor behavior and market structure, with approximately 2.3 million BTC now held outside of exchanges. This trend is indicative of a growing long-term confidence in Bitcoin, as more holders are moving their coins to digital wallets and cold storage.

The decrease in exchange-held Bitcoin is deemed bullish because it reduces the selling pressure, as cryptocurrencies are usually kept in exchanges for liquidation purposes. CryptoQuant data supports this insight, showing that Bitcoin’s hodl level has hit a 2-year high. This measure, known as the Fund Flow Ratio, tracks the proportion of Bitcoin moving through exchanges relative to the total transaction volume on the network.

One primary factor contributing to the drop in exchange balances is the migration of Bitcoin holdings from exchanges to institutional custodians. This shift has been accelerated by the approval of Bitcoin Spot exchange-traded funds (ETFs) in January 2024. Major asset managers, including BlackRock and Fidelity, have accumulated substantial Bitcoin reserves for their ETF products, often utilizing custodians like Coinbase. This movement has led to a reclassification of holdings, where assets previously counted as exchange balances are now under institutional custody.

Banking giant JP Morgan recently revealed that it could accept Bitcoin ETF shares for loans, unlocking new credit lines. This development further underscores the growing institutional interest in Bitcoin and its potential to drive market dynamics.

A supply shock occurs when the availability of an asset diminishes while demand remains steady or increases, often leading to a price surge. In Bitcoin's case, several converging factors have the potential to create a notable supply shock. The most recent halving in April 2024 decreased the block reward from 6.25 BTC to 3.125 BTC, effectively halving the rate at which new bitcoins enter circulation. This reduction tightens supply, especially as demand continues to grow. The introduction of spot Bitcoin ETFs has provided institutional investors with a regulated avenue to gain exposure to Bitcoin.

An increasing number of companies are incorporating Bitcoin into their corporate treasuries as a hedge against inflation and currency devaluation. As of June 2025, 80 firms collectively own around 3.4% of the total Bitcoin supply. Notable examples include MicroStrategy, which holds approximately 580,000 BTC, and GameStop, which recently invested $500 million into Bitcoin. South Korean entertainment conglomerate K Wave Media recently revealed plans to roll out a $500 million Bitcoin treasury strategy with the aim of expanding its K-pop related business, including music distribution and concert management.

Global macroeconomic factors are also contributing to Bitcoin's bullish outlook. The U.S. Federal Reserve's monetary policies have led to an expected 18% increase in the global M2 money supply in 2025, from $107 trillion to over $127 trillion. This monetary expansion, coupled with a weakening U.S. dollar, enhances Bitcoin's appeal as a store of value.

The decline in exchange-held Bitcoin reduces the immediate supply available for trading, potentially leading to decreased selling pressure. In economic terms, a lower supply amid steady or increasing demand can exert upward pressure on prices. With BTC reserves on exchanges hitting a 7-year low, it remains to be seen whether a supply shock will jumpstart the apex cryptocurrency to the next level as Bitcoin traverses the $105,216 level.