Investors have long viewed reserves on exchanges as a key indicator of the accumulation and scarcity of an asset. Bitcoin held on exchanges has reached a new record low this month.
However, as we approach the final days of 2025, the price of Bitcoin risks closing the year below its opening level. Why doesn't the decrease in reserves on exchanges support higher prices?
Decrease in exchange reserves and Bitcoin price
Under normal conditions, a sharp drop in reserves on exchanges indicates that long-term investors are transferring their BTC to cold wallets. This behavior reduces selling pressure and often pushes the price up.
Data from CryptoQuant shows that reserves on exchanges (blue line) have been steadily decreasing since the beginning of the year. The indicator reached a new low towards the end of 2025. Holders have accelerated BTC withdrawals since September, and approximately 2,751,000 BTC are currently held on exchanges.
At the same time, the price of Bitcoin dropped from over 126,000 to about 86,500. Several recent analyses highlight another aspect of the issue. Indeed, a decrease in the number of BTC on exchanges can sometimes have a counterproductive effect.
First of all, the Inter-Exchange Flow Pulse (IFP) has weakened. The IFP measures the movements of Bitcoin between exchanges and reflects overall trading activity.
“When the IFP is high, arbitrage and liquidity provision operate smoothly. Order books remain well-supplied and price movements are generally more stable. When the IFP declines, the market's 'blood circulation' weakens. Prices then become more sensitive to relatively modest-sized orders,” explains the analyst at XWIN Research Japan.
XWIN Research Japan adds that this decrease in liquidity coincides with historically low reserves on exchanges. Scarcity no longer supports the price as expected. Conversely, thinner order books make the market fragile: even moderate selling pressure can lead to price pullbacks.
Furthermore, most exchanges have recently shown an accumulation of BTC, due to negative BTC Flow. In contrast, Binance — the exchange holding the largest share of liquidity — recorded significant inflows of Bitcoin.
“This is important because Binance is the main liquidity hub for Bitcoin. User and whale behavior there often has a disproportionate impact on short-term price movements. When Bitcoin flows into Binance while other exchanges see outflows, the overall strength of the market can remain sluggish,” explains the analyst Crazzyblockk.
In other words, Binance acts as the main liquidity center for the market. The concentration of capital on this exchange weakens the dynamics of the entire crypto market and negates the accumulation signals observed on other platforms.
Reserves on exchanges have hit historic lows. However, the weakness in liquidity and the concentration of capital on Binance continue to hinder Bitcoin's upward potential.
Additionally, a recent analysis by BeInCrypto highlights that Bitcoin has retreated as traders sought to reduce risk in the face of a potential rate hike by the Bank of Japan. Such an initiative could threaten global liquidity and the yen carry trade.
The market dynamics at the end of 2025 deliver an essential lesson: on-chain data is not always interpreted unambiguously or simplistically.
The moral of the story: The answer is not always on-chain.
