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Crypto analyst Nicholas Merten says that while Bitcoin (BTC) flying out of exchanges may look bullish, there could be more than meets the eye.

In a new video, Merten takes a look at a metric from blockchain tracker Glassnode that shows the supply of Bitcoin slowly declining on crypto exchanges.

On the surface, the declining supply of BTC on crypto exchanges may seem bullish.

However, the analyst points out that the metric doesn’t include the futures and options markets. He suggests that more and more crypto is actually just going to derivatives market where it gets traded without putting upward pressure on the underlying asset.

“Many people look at the decline here, throughout 2020 and 2021, the continuous decline and low-levels that we’ve seen, cutting a couple percentage points off, as a really bullish sign. That the intuitions or other players are buying large chunks of Bitcoin and they’re storing it in cold storage where they’re taking it off the exchanges and holding it for the long term. The real institutional players: the hedge funds the family funds… Just swallowing up the Bitcoin…

Well, not to say that stuff isn’t going on, but it is not the main reason for this decline.”

Merten says that derivatives are sucking capital away from the real crypto markets, “disorienting” the space and creating underwhelming buy-side pressure on Bitcoin and other digital assets. According to the crypto strategist, the shift of traders’ preference from spot to derivatives markets could be part of what’s behind the underwhelming performance of the crypto markets

“This is what’s really disorienting markets. Because that exchange outflow… that everyone is saying is bullish, is really sucking in Bitcoin into derivatives markets. All those new users who have Bitcoin or in this case dollars or some form of value, they’re going to the derivatives platforms. Their buy-side pressure is now no longer going to the spot exchanges.”

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