Conventional wisdom suggests that when big amounts of bitcoin exit exchanges, the hodlers are socking away coins in their cold-storage hoards, presumably forever. The reality is more complicated than that, and bitcoin outflows in 2021 have a lot more to do with another important digital asset: stablecoins.But first, how we got here: The crypto industry still isn’t happy about FinCEN’s proposal to require crypto exchanges to collect data on both sides of any outflow transactions. Now, crypto advocates have a civil liberties group taking their side in comments on the proposal. That caused me to wonder, just how much money are we talking about?Value of bitcoin flowing out of exchange walletsThe chart above shows the estimated notional value of bitcoin flowing out of exchange wallets, summed by month. The real number is probably larger. Notably, Coinbase goes to greater lengths than most exchanges to disguise its Bitcoin addresses and therefore the largest U.S.-accessible exchange by volume is almost certainly undercounted here.However, $60 billion a month is nothing to sneeze at. It’s no wonder regulators are paying attention to these flows.You’re reading Crypto Long & Short, a newsletter that looks closely at the forces driving cryptocurrency markets. Authored by CoinDesk’s head of research, Noelle Acheson, it goes out every Sunday and offers a recap of the week – with insights and analysis – from a professional investor’s point of view. You can subscribe here.Much of the increase in outflows is due to bitcoin’s extraordinary Q1 price run. It was a record first quarter for the orange coin. Historically, for whatever reason, the first quarter has been a weak one, with negative returns in five of the past seven years, according to CoinDesk Research. In 2021, bitcoin rose 103% on the quarter.That’s not the whole story, however. Last week saw another record: a single-day high-water mark in bitcoin-denominated outflows, with 1,365 BTC transferred off exchanges in a 24-hour period.Some interpret these transfers bullishly: bitcoiners moving their exchange bitcoin into cold storage. Crypto analyst Willy Woo calls these hodlers “Rick Astleys,” since the UK pop singer’s chart-topping 1987 single, “Never Gonna Give You Up,” aptly describes their feelings about bitcoin. But as I said on CoinDesk TV’s All About Bitcoin show last Friday, it’s possible that they are Stevie Wonders. Meaning, they’re “Part-Time Lover(s).”Here’s what I mean by that: One of the underlying market dynamics of the past three years has been the rise of stablecoins. Tether (USDT), in particular, has replaced bitcoin as the dominant quote currency of crypto altcoin trading. What that means is, when I want to use crypto to buy crypto on an exchange, I’m much more likely to be doing that in tether or, to a limited extent, USD coin (USDC), Circle’s dollar-pegged stablecoin.Quote currency volumes: stablecoins vs. bitcoinWhat we’re looking at here is quote currency volumes, the volume of markets priced in bitcoin and the top two stablecoins for the top four altcoins: ether, cardano, chainlink and Stellar lumens, on three exchanges included in TradeBlock’s bitcoin XBX index, plus Binance. So, this is a sample of the market, but a significant one. (TradeBlock is owned and operated by CoinDesk, and its XBX index is drawn from the most liquid exchanges that are accessible to U.S. investors, and I’m using Binance as a reliable proxy for the rest of the world.)As the chart shows, by the beginning of 2020, a flippening had occurred, with stablecoins already replacing bitcoin as the dominant crypto quote currency. Since then, tether and USDC have continued to eat up a growing share of quote currency volume, replacing bitcoin more and more. Bitcoin’s quote volume is now down to 12% versus the two largest stablecoins. And so, increasing bitcoin outflows reflect that trend as much as anything else: as volume moves from markets quoted in bitcoin to markets quoted in tether, exchange wallet balances reflect that move.In other words, when it comes to the popular narrative of bitcoin outflows as a bullish signal of hodler activity, I think that’s a story dreamed up by the Doobie Brothers: it’s “What a Fool Believes.” I tend to lean more toward Tina Turner on this metric, wondering, “What’s Love Got to Do Wwith It“? My advice to investors would be to stay like Daryl Hall & John Oates, and keep their “Private Eyes” watching this market closely. Having traded in a band between $50,000 and $60,000 for more than a month, bitcoin seems likelier every day to make a breakout. Be cautious of narratives based on tea leaves in the blockchain data.