Bitcoin Exchange Reserves
Reach a 2-
Year Low,
But Analysts Disagree
on Why
Bitcoin Exchange Reserves Reach a 2-Year Low, But Analysts Disagree on Why
Low Bitcoin exchange reserves is good, right? "The common interpretation of
this trend needs a more nuanced approach," a Hyblock exec said.
By Adrian Zmudzinski
Oct 17, 2024 Oct 17, 2024
3 min read
Bitcoin is the leading crypto asset by market cap. Image: Created by Decrypt
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As the Bitcoin price draws closer to $68,000, on-chain indicators show that
some favorable fundamentals are working in its favor.
Bitcoin reserves on exchanges had reached an all-time low of under 2.7 million
BTC, down from over 3.3 million nearly three years prior, according to
CryptoQuant data .
But first, a few caveats about the data. It only goes back to mid-October
2021, so it is unclear how long ago Bitcoin reserves were at the level they
are now. And the latest metric available is from mid-September. CoinMarketCap
research lead Alice Liu explained to Decrypt that it is a delayed data-sharing
industry initiative put in place after the fall of crypto exchange FTX .
In other words, it's a feature—not a bug.
There are several factors that might be impacting the level of Bitcoin on
exchanges. The trustee overseeing Mt. Gox's assets announced another
delay in distributing remaining funds to creditors, pushing the deadline by
one year to October 31, 2025. Mt. Gox, once one of the world's largest
cryptocurrency• Экономика » Финансы » Платежные средства » Платежные системы интернета » Криптовалюта exchanges, collapsed after a major hack in 2014. Although some
creditors have been repaid, wallets linked to its estate still hold 44,905 BTC
worth approximately $3 billion, according to on-chain data analytics firm
Arkham Intelligence .
Another initiative that's impacted Bitcoin’s available supply is Babylon,
a Bitcoin staking protocol that recently reopened for additional BTC deposits,
attracting about $1.4 billion of coins. Babylon aims to add utility to Bitcoin
by launching a proof-of-stake• Экономика » Финансы » Платежные средства » Платежные системы интернета » Криптовалюта marketplace that allows third-party protocols to
leverage it for security.
Liu told Decrypt that “when Bitcoin reserves on exchanges decline, it
typically indicates a shift in investor sentiment.” She pointed out that
“fewer coins available on exchanges creates scarcity, leading to upward
pressure on prices.”
That could also create a lower supply of coins for trading—thus infusing some
volatility into the market, she added.
“Historically, in previous market cycles, falling exchange reserves have been
closely linked to retail investors adopting a long-term holding strategy,” Liu
said.
She further explained that moving assets off-exchange to “cold storage reduces
the likelihood of impulsive selling, further reinforcing the view that the
investors could be committed to holding through long-term.”
Liu also pointed out that while in the past the trend of withdrawing Bitcoin
from exchanges was driven by retail participants, institutional investors are
playing a larger role in this cycle.
“Investors are once again pulling Bitcoin off exchanges, which could indicate
the start of an accumulation phase in the current market cycle," she said.
Hyblock Capital co-founder and CEO Shubh Varma told Decrypt that “while
Bitcoin exchange reserves are indeed reaching historic lows, the common
interpretation of this trend needs a more nuanced approach.” He noted that
this draw down in Bitcoin exchange reserves has been coupled with "a
noticeable increase in buying pressure, especially in the derivatives market”
and open interest is rising.
This, Varma explained, indicates traders could be taking on more leverage
rather than just shifting BTC to cold storage. That would mean a lot of the
recent Bitcoin price action has been fueled by leveraged trading, particularly
in the derivatives market.
“The increased leverage in the system raises concerns about market health, as
leveraged positions can lead to heightened volatility, especially when events
like the upcoming U.S. elections are factored in,” he concluded.
Edited by Stacy Elliott .
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