On-chain data shows that Binance USD (BUSD) foreign exchange reserves have fallen recently, a factor that may be behind Bitcoin’s slowdown.
Binance USD (BUSD) Exchange reserves are down
As noted by an analyst in a CryptoQuant after, there was a very large inflow of $250 million BUSD some time ago. The “exchange reserve” is an indicator that measures the total amount of a cryptocurrency (in this case Binance USD) currently stored in wallets of centralized exchanges.
In general, investors trade their coins for stable coins like BUSD when they want to avoid the volatility associated with other cryptocurrencies like Bitcoin. When these holders feel that prices are right to re-enter the volatile markets, they move their stables back to their desired coins. This can act as buying pressure for the specific crypto they are trading into.
Investors usually use exchanges to trade these coins, meaning that when the exchange reserve of a stablecoin like BUSD rises, it opens up the possibility for holders to want to buy back into volatile cryptocurrencies. A large enough increase in the stablecoin reserve could result in major buying pressure for other coins and therefore could have a bullish effect on their prices.
Here is a chart showing the trend in the Binance USD exchange reserve (specific to spot exchanges) over the past few months:
The value of the metric seems to have been going down in recent days | Source: CryptoQuant
As you can see in the chart above, the Binance USD exchange reserve witnessed a rapid increase a while ago. Since then, however, the metric has steadily declined and has now reached significantly lower values.
But the chart shows that while the BUSD reserve was falling from high values, Bitcoin was rising instead. This means that holders may have been actively trading the stablecoin for BTC, boosting the price.
The chart also displays data for a metric called the “exchange power“Which tells us the net number of coins entering or exiting the exchange portfolio. When this metric has a positive value, it means that investors are currently depositing a net amount of the asset into exchanges, while negative values suggest net withdrawals are taking place.
A while back there was a huge positive spike in the Binance USD exchange net flow of around $250 million (which caused the reserve to blow up). This influx may have helped the recent BTC rally.
Since then, however, there have been nothing but outflows, bringing the reserve back to where it was before this $250 million peak. This suggests that the buying pressure from this inflow has now dried up, which could be one of the factors responsible for the latest slowdown in Bitcoin’s rally.
BTC price
At the time of writing, Bitcoin is trading around $20,700, up 14% over the past week.
Bitcoin plunges down | Source: BTCUSD on TradingView
Featured image of Nicholas Cappello on Unsplash.com, charts from TradingView.com, CryptoQuant.com