There is a metric that we report on regularly on the Journal du Coin.
It is the total balance of the exchange platforms in bitcoin (BTC) or ether (ETH). This amount has been steadily decreasing throughout the year, and we are reaching a new low.
Bitcoin, a less and less liquid asset?
One of the advantages of the traceability of the Bitcoin Machine blockchain is the transparency of the markets. Unlike traditional markets, it is possible to quantify many financial flows.
One of the metrics we are interested in is the total balance of the exchange platforms. It allows us to have an idea of the available supply, since most large exchanges have identified their cold wallets.
Since the beginning of 2020, this quantity has been constantly decreasing. We have just reached the lowest point of the year. Let’s take a look at the data from Glassnode Studio :
The foreign exchange platforms thus hold 2.55 million BTC in the first third of October 2020. This value has decreased by 14.4% since the beginning of the year. This is a level we had not reached since November 2018. This corresponds to the time when the price of bitcoin had broken its 6400 dollar support.
BTC trading balance (2017-2020)
This means that the supply of bitcoin is becoming scarce. And, unlike gold, it is not possible to mine more Bitcoin when supply is dwindling! This is therefore a sign that is considered positive for the price of Bitcoin. However, as we can see from the graph above, there is not really a clear correlation between the evolution of the balance of exchanges and the price of BTC.
Can we really interpret this metric?
Of course, making these data speak is primarily speculation. There may be several explanations for this phenomenon.
First of all, Bitcoin miners are producing half as much since the last halving. Although not all of these Bitcoins may end up on the platforms, this decrease in supply is a factor.
Second, investor behavior. They are probably more inclined to secure their Bitcoins themselves. They may use hardware wallets, or they may use custodial services for the wealthy. Similarly, early adopters have already taken large profits of between $10,000 and $20,000. These big wallets are certainly waiting for newer, higher ones to sell their leftovers. And those who bought after 10,000 dollars and are holding bravely are probably looking for a price in the tens of thousands of dollars.
Finally, Bitcoin holders are more open to decentralized finance (DeFi). Many protocols offer generous returns against BTC collateral. The Bitcoineurs have therefore probably taken advantage of the DeFi craze in recent months to make their dormant funds „fructify“.
So, is this metric really significant? Theoretically, with a constant or increasing demand, it bodes well for the course. But let’s not forget that the big traders, the whales, have an important impact on the price of Bitcoin. They regularly take a malicious pleasure in making the statistics lie.