Investors have long considered exchange reserves an important metric for accumulation and asset scarcity. The amount of Bitcoin held on exchanges fell to a new record low this month.
However, as Bitcoin approaches the last days of 2025, the price threatens to close the year at a lower level than where it started. Why do declining exchange reserves not support higher prices?
How do declining exchange reserves negatively affect Bitcoin's price?
Under normal conditions, a sharp decline in exchange reserves indicates that long-term investors are moving BTC to cold wallets. This reduces selling pressure, which often raises the price.
CryptoQuant's data shows that exchange reserves (blue line) have steadily decreased since the beginning of the year. The metric reached a new low at the end of 2025. Individuals have accelerated BTC withdrawals since September. About 2,751 million BTC is currently held on exchanges.
At the same time, the price of Bitcoin fell from over $126,000 to about $86,500. Several recent analyses highlight another side of the issue. A decrease in BTC supply on exchanges can sometimes have the opposite effect.
First, the Inter-Exchange Flow Pulse (IFP) has weakened. IFP measures the movement of Bitcoin between exchanges and reflects overall trading activity.
”When the IFP is high, arbitrage and liquidity provision work well. The order books remain thick and prices more stable. When the IFP decreases, the market 'circulation' weakens. Prices react more sensitively to relatively small trades,” explained analyst XWIN Research Japan.
XWIN Research Japan added that this liquidity decline coincides with record low exchange reserves. Scarcity no longer supports the price in the expected way. Thinner order books make the market more fragile. Even a small amount of selling pressure can cause prices to drop.
In most exchanges, BTC accumulation has been observed recently, which is reflected in the negative BTC Flow figure. In contrast, Binance— which dominates the largest portion of liquidity—has recorded significant Bitcoin investments.
”This is essential because Binance is the largest concentration of Bitcoin liquidity. The actions of users and whale investors on Binance often have a strong impact on short-term price development. When Bitcoins flow towards Binance while other exchanges see outflows, the overall strength of the market may still remain subdued,” analyst Crazzyblockk clarified.
In other words, Binance acts as the market's key liquidity hub. The concentration of capital on this exchange undermines the overall market sentiment. It also obscures the accumulation signals of other platforms.
Exchange reserves are now at a record low. Nevertheless, weak liquidity and capital concentration on Binance continue to weigh on Bitcoin's rise.
Additionally, a recent BeInCrypto analysis noted that Bitcoin's price fell as traders reduced risk ahead of a potential interest rate hike by the Bank of Japan. Such a decision could threaten global liquidity and the yen's carry trade.
The market situation towards the end of 2025 highlights an important lesson. On-chain data does not always allow for simple and straightforward interpretation.
