Bitcoin Supply on Exchanges Drops 30% as Institutional Demand Surges

Sygnum Bank's June Investment Outlook report, released on June 4, offers a comprehensive analysis of the current global financial landscape and its implications for digital assets. The report delves into various factors influencing economic trends, including tariff uncertainty, fiscal stress, and their impact on Treasury markets. These conditions have led to a weaker dollar and altered liquidity patterns, creating a favorable environment for risk assets, including cryptocurrencies.

The report highlights a significant decline in Bitcoin's supply on major trading exchanges. Over the past 18 months, exchange balances have decreased by approximately one million coins, representing a 30% reduction in liquid Bitcoin available to traders. This trend is attributed to growing demand from institutions and ETF products, as more investors prefer holding rather than selling, leading to tighter market liquidity. Tighter liquidity could result in increased price volatility for digital assets in the near term, making it crucial for market participants to monitor these supply changes when making trading decisions.

This shift in Bitcoin supply coincides with increasing institutional adoption across multiple regions. Several asset managers and financial products now integrate Bitcoin into their offerings. Legislators in three U.S. states have authorized holding Bitcoin reserves legally, with New Hampshire being the most recent to enact such legislation. Additionally, lawmakers in the U.K. and Pakistan have expressed interest in purchasing Bitcoin. This institutional adoption is further supported by reduced volatility and clearer regulatory signals, indicating a significant shift toward digital asset acceptance among institutional actors.

Graph 1, provided by Sygnum Bank, illustrates that Bitcoin’s price swings have lessened as markets mature and liquidity improves over time. Historical volatility ranged between 60–100% but has recently moved to 40–50% levels. Despite decreased volatility, Bitcoin remains more volatile than gold. Notably, upside swings have exceeded downside shocks since mid-2022, easing investor concerns. Reduced downside volatility could encourage more significant institutional involvement over time, influencing decisions for portfolios, including cryptocurrency allocations.

May saw strong gains for major cryptocurrencies, with Bitcoin and Ethereum leading the way. Bitcoin soared 11.1% amid fiscal instability and renewed risk-on sentiment trends. Ethereum posted a 41.0% rise following its successful Pectra network upgrade implementation. Higher network fees and revenue growth bolstered Ethereum’s appeal among institutional developers. Other cryptocurrencies exhibited varying performance, with Solana gaining only 6.1%. Overall sentiment improved as investors viewed crypto as a hedge against instability, highlighting how macro trends can drive digital asset returns quickly.

Ethereum’s recent upgrade is prompting a reevaluation of its role as a base layer. Traditional financial firms are now examining Ethereum for tokenized financial product development. Improved network security and stability have boosted institutional confidence in Ethereum. By comparison, alternative platforms faced setbacks from technical issues and outages recently. This shift might influence long-term planning for institutional digital asset infrastructure. Market watchers anticipate further changes as Ethereum evolves and regulatory clarity emerges, encouraging investors to track these developments for potential long-term opportunities.

The report also highlights stablecoin growth as an indicator of capital inflows into the crypto market. TRON maintains a high share of stablecoin transactions, especially in emerging markets. In developed regions, yield-bearing stablecoins such as PayPal’s 3.7% offering draw interest. Traditional finance firms like Galaxy and Robinhood are preparing tokenized equity products for clients. Regulators are working on real-world asset rules, including SEC efforts for RWA frameworks. Recent comments suggest most crypto assets may not qualify as securities under U.S. law. Pending legislation on market structure and stablecoin issuance could reshape the regulatory landscape, making it essential for investors to stay informed about these developments.