According to CryptoQuant’s data on May 10, Bitcoin reserves in centralized exchanges such as Binance and Coinbase experienced a significant decline in Q4 2022. The reserves remained stable in April despite the prices soaring from $20,000 to $31,000 during that period.
Exchange Bitcoin Reserves Rapidly Shrinking
Bitcoin exchange “reserves” is a metric that tracks the amount of BTC held by centralized exchanges at any given time. Typically, the interaction between coin holders and exchanges can be used to gauge sentiment and their price expectation of the coin shortly.
An example of reserves falling is when there is a sudden outflow from exchanges. This could indicate that users are optimistic and store their assets in non-custodial wallets. However, it’s important to note that this may not always be the reason for outflows. They can also be caused by fundamental factors such as hacks or regulatory concerns – as seen recently with Binance.
Conversely, Bitcoin inflow to exchanges may drive the ramp’s reserves higher. Even so, this is interpreted as bearish since holders might quickly liquidate their assets for cash or stablecoins.
With Bitcoin reserves across centralized exchanges falling, it could mean traders expect prices to rise shortly. In Q4 2022, the total Bitcoin exchange reserve in all tracked ramps fell sharply, especially in November 2022. This coincided with the collapse of FTX and questions emerging about the stability of Binance and other centralized exchanges.
Binance, the world’s largest cryptocurrency exchange, led other platforms in publishing proof-of-reserve statements to assuage fears and re-instill confidence. Though reserves have stabilized, there was a marked drop in late March 2023.
Then, the bank run at Silicon Valley Bank (SVB) and the closure of Signature Bank, banks that served crypto projects, including Circle, the issuer of USDC, appeared to have triggered coin outflows. From March 20 to early April, the Bitcoin exchange reserve fell from around 2.2 million to 2.1 million.
Will BTC Rally?
The general trend of Bitcoin exchange reserves remains negative, and prices are relatively firm, trading below $31,000.
While this correlation between rising prices and falling exchange reserves is still valid, whether regulatory actions against crypto exchanges may cause a divergence is yet to be seen.
Binance is reportedly being investigated by several United States agencies, including the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).
The CFTC alleges that Binance, the world’s largest exchange, flouted trading laws in the country. Still, whether charges will be brought forward is being determined when writing.
Any official charge might dent users’ confidence in the exchange, possibly triggering more outflows and lowering BTC reserves.