The case for a continued rally in bitcoin (BTC) to $40,000 and higher by the year-end has strengthened, with centralized exchanges recently witnessing a sizeable exodus of coins.

Data by Glassnode shows just over 37,000 BTC, worth $1.4 billion, has been withdrawn from exchanges since Nov. 17 in a sign of investors taking direct custody of their coins.

The outflow likely represents a bias for a long-term holding strategy, although some of it could have stemmed from Binance's guilty plea. The bias for holding means strong demand and weakening sell-side pressure in the market amid euphoria from an expected launch of a spot exchange-traded fund (ETF) in the U.S.

Exchange outflows have historically marked local price lows, supporting expectations of a medium-term price rise.

BTC traded above the $38,800 mark early Friday, leading to gains in the broader crypto market, with some major tokens jumping as much as 5% in the past 24 hours.

Overall market capitalization rose to $1.5 trillion – a level last seen in May 2022 – adding some $400 billion since the start of October.

Some market watchers say expected rate interest cuts by central banks in the months ahead could generally attract capital to markets – leading to more volatility in speculative markets such as cryptocurrencies.

"The Federal Reserve has paused its rate hiking cycle and central banks around the world are following," Anthony Rousseau, head of brokerage at TradeStation, told CoinDesk in an email. "It's plausible to believe we have reached the heights of this tightening cycle. For risk assets to get a sustained bid we will need to see a path forward with lower rates and an end to Quantitative Tightening."

"We are potentially entering in 2024 an opportunity for a net positive liquidity for the markets. Bitcoin is a pure reflection of net liquidity in the markets, and we would need to see positive liquidity to support any substantial bullish activity," Rousseau added.

Bitcoin momentum started to rise late Tuesday as Federal Reserve governor Chris Waller said recent data suggested a slowdown in the economy and continuing moderation in inflation showed current policies were in the "right spot."

Waller also said that if inflation were to continue to decline, there's a good argument to be made for rate cuts within a few months.

Interest rate decisions tend to move markets. Higher rates usually mean risk assets such as stocks and cryptocurrencies take a hit as investors could take profits and invest in bonds.

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