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Bitcoin holdings on centralized exchanges such as Binance and Coinbase declined significantly in the fourth quarter of 2022, according to data from CryptoQuant on May 10. Reserves remained stable in April despite prices rising from $20,000 to $31,000 over the period.
Bitcoin Exchange Reserves Are Decreasing Rapidly
Bitcoin exchange “reserves” is a metric that tracks the amount of BTC held on centralized exchanges at any given time. Generally, the interaction between coin holders and exchanges can be used to gauge sentiment and their expectations of the price of a coin in the near future.
An example of a fall in reserves is a sudden outflow of funds from exchanges. This may indicate that users are optimistic and are keeping their assets in non-custodial wallets. However, it is important to note that this may not always be the reason for churn. They can also be caused by fundamental factors such as hack attacks or regulatory issues, as seen recently on Binance.
Conversely, the influx of Bitcoin into exchanges can increase ramp reserves. However, this is interpreted as bearish as holders could quickly sell their holdings for cash or stablecoins.
As Bitcoin reserves on centralized exchanges are falling, this could mean that traders are expecting prices to rise soon. In the fourth quarter of 2022, the total Bitcoin exchange reserve on all ramps monitored fell sharply, especially in November 2022. This coincided with the collapse of FTX and questions about the stability of Binance and other centralized exchanges.
Binance, the world’s largest cryptocurrency exchange, has led other platforms to release proof of reserves to allay fears and re-inspire confidence. Although stocks have stabilized, there was a noticeable drop in stocks at the end of March 2023.
Then the management of Silicon Valley Bank (SVB) and the closure of Signature Bank, banks that served crypto projects, including Circle, the USDC issuer, apparently caused the coins to churn. From March 20 to early April, the Bitcoin exchange reserve fell from about 2.2 million to 2.1 million.
Will BTC rally?
The overall trend of Bitcoin exchange reserves remains negative and prices are relatively stable trading below $31,000.
While this correlation between rising prices and falling foreign exchange reserves is still valid, it remains to be seen if regulators’ actions against cryptocurrency exchanges could cause a divergence.
Bitcoin Price May 10 | Source: BTCUSDT on Binance, TradingView
Binance is reportedly being investigated by several US 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, has violated the country’s trading laws. However, whether charges will be filed is being clarified as the article is being written.
Any formal accusation could undermine user confidence in the exchange, which could lead to increased outflows and lower BTC reserves.
