Investors have long viewed exchange reserves as an important indicator of accumulation and scarcity of assets. Bitcoin on exchanges reached a new record low this month.
But as Bitcoin approaches the last days of 2025, the price risks ending the year below the opening level. Why doesn’t falling exchange reserves lead to higher prices?
How falling exchange reserves impact the Bitcoin price
Under normal circumstances, a sharp drop in exchange reserves signals that long-term investors are moving BTC to cold wallets. This behavior reduces selling pressure and often increases the price.
Data from CryptoQuant shows that exchange reserves (blue line) have fallen steadily since the beginning of the year. The measurement reached a new low towards the end of 2025. Holders have increased BTC withdrawals since September. Around 2,751 million BTC is currently held on exchanges.
At the same time, the Bitcoin price fell from over $126,000 to around $86,500. Several recent analyses highlight another side of the issue. A decrease in the number of BTC on exchanges can sometimes have the opposite effect.
Firstly, the Inter-Exchange Flow Pulse (IFP) has weakened. IFP measures the flow of Bitcoin between exchanges and reflects overall trading activity.
“When IFP is high, arbitrage and liquidity provision operate smoothly. The order books remain robust, and price movements often have greater stability. When IFP falls, the market's 'blood flow' weakens. The price becomes more sensitive to relatively small trades,” explained analyst XWIN Research Japan.
XWIN Research Japan added that this liquidity decline coincides with historically low exchange reserves. Scarcity no longer supports the price as expected. Thinner order books instead make the market more fragile. Even moderate selling pressure can trigger a decline in the price.
Secondly, most exchanges have recently shown BTC accumulation, as reflected by negative BTC Flow. In contrast, Binance—the exchange with the largest liquidity—recorded significant inflows of Bitcoin.
“This is important because Binance is the largest Bitcoin liquidity center. Users and whale wallets there often have a significant impact on short-term price development. When Bitcoin flows into Binance even as other exchanges experience outflows, the overall market strength can remain weak,” explained analyst Crazzyblockk.
In other words, Binance acts as the market's primary liquidity center. Capital concentration on this exchange weakens the broader market momentum. It also counteracts accumulation on other platforms.
Exchange reserves have fallen to record low levels. Nevertheless, weak liquidity and capital concentration on Binance continue to hold back Bitcoin's upside.
Additionally, a recent BeInCrypto analysis pointed out that Bitcoin fell when traders reduced risk ahead of a possible interest rate hike from the Bank of Japan. Such a move could threaten global liquidity and the yen carry trade.
The market dynamics late in 2025 highlight an important lesson. On-chain data does not always provide a single and unambiguous interpretation.
