The amount of bitcoin held on centralized cryptocurrency exchanges decreased by 4.1% this month in a signal that could show increased investor confidence in the digital asset. 

Centralized exchanges held 2,010,346 bitcoin at August's end, down 86,305  from the month's start, according to CryptoQuant data. That's the lowest reserve level since January 2018.

The decreasing supply of bitcoin held on exchanges suggests investor confidence in bitcoin's long-term prospects, and it could also be interpreted that traders are waiting for more favorable market conditions before executing sell orders.

"The considerable transfer of bitcoin from exchange platforms to secure cold wallets underscores the assurance exhibited by long-term investors," CryptoQuant data analyst Adam Mourad told The Block.

Significant bitcoin outflow from exchanges

Mourad added that the outflows trace a strategic route chosen by certain investors to transfer their bitcoin away from exchange platforms.

"This maneuver can be interpreted as an attempt to shield their invested capital from the ongoing market instability," he said, also pointing to a significant outflow of BTC -2.89% that coincided with the positive price trajectory after a U.S. appeals court ruled in favor of Grayscale on Tuesday.

"Observations subsequent to the price surge reveal that more than 20,000 bitcoins had been transferred out of exchanges into cold wallets," he added. The analyst said investors could be perceiving the market is still undergoing a corrective phase.

However, he added the action "signified a belief in the enduring value of bitcoin."

After its recent break-out, bitcoin has been hovering around a "critical testing ground." The world's largest cryptocurrency by market capitalization fell 2% over the past 24 hours to $26,370 at 1:15 p.m. ET, according to CoinGecko.