Despite an uneventful month for Bitcoin (BTC) price, on-chain metrics suggest that Bitcoin may be gearing for an imminent bull run. Noticeably, the number of Bitcoin held on spot exchanges has been decreasing since the start of the year, according to data from on-chain analytics firms, CryptoQuant, and glassnode.

Crypto analyst, Willy Woo, noted that this change in trend is extremely bullish for Bitcoin as it signals an increased demand for the asset and interest in holding it as a store of value. Woo tweeted:

“When coins on spot exchanges drop, it’s a sign that new buyers are coming in to scoop coins off the markets and moving them into cold storage HODL, we are seeing new HODLers right now. Very macro bullish.”

While a decreasing number of coins held by spot exchanges can also point to an exodus into derivatives exchanges, flows from the former to the latter have also been decreasing according to data from CryptoQuant.

The flow from derivatives exchanges to spot exchanges and hard wallets could possibly be exacerbated by the recent CFTC and DOJ legal action taken against BitMEX exchange. 

The current accumulation resembles 2017

The trend in coins held by spot exchanges started to change in the beginning of 2020 and it paints a familiar picture for traders. The dip resembles the accumulation stage of late 2016 which in turn fueled the 2017 bull market that saw Bitcoin price reach its all-time high of $20,089. 

Both stages have followed noteworthy events like the prospect of a Bitcoin ETF led by the Winklevoss twins in 2017 and the recent buying frenzy by business intelligence giant MicroStrategy. According to Woo, the market has failed to react to these on-chain indicators. He tweeted: 

“This is one of the few times in my Bitcoin career where the fundamentals (on-chain data and metrics from infrastructure players) are in moon mode, yet the market is not woke to it. They will be by 2021. This is an opportunity I’ve not seen since mid-2016.”

The DeFi slump makes way for Bitcoin

A depleting reserve of BTC on exchanges is a bullish sign for Bitcoin from a macro perspective. However, some suggest the changing trend may be caused by the growing popularity of DeFi and other liquidity related protocols that have created a demand for tokenized Bitcoin and the liquidity that comes with the asset.

This would still paint a positive picture for Bitcoin as it shows users prefer to receive interest for holding BTC than to take profit. While there is nearly $1 billion worth of Bitcoin on the Ethereum blockchain through WBTC alone, the tokenized version of Bitcoin only started gaining traction in late June 2020.

Moreover, it also seems like the growth of DeFi has been stunted. Token prices have been plummeting and the total value locked in DeFi protocols continues to drop across the sector and also in the tokenized versions of Bitcoin.

The current reduction in interested DeFi participants has led many analysts to infer that a possible cycling of DeFi and altcoin profits to Bitcoin is underway. If so, this suggests that Bitcoin is preparing for another bull run, especially as new participants continue to join the network.