No pattern has been formed in the Bitcoin exchange reserve ratio that historically preceded the start of the cryptocurrency’s bull run.
The Bitcoin exchange reserve ratio has been declining lately
As one analyst at CryptoQuant pointed out: mailIn the past, bull markets began with the increase in holdings of US stock exchanges. A relevant indicator here is the “exchange reserve ratio”, which measures the ratio between the exchange reserves of any two exchange platforms or groups of them.
Exchange reserves here refer to a metric that tells us the total amount of bitcoin currently held in the wallets of a centralized exchange (or in the combined wallets of many platforms).
In the context of the present discussion, the exchange reserve ratio is taken between the combined reserve of US-based rigs and the reserve of foreign rigs.
When the value of this percentage increases, it means that the total number of coins on US exchanges is rising compared to global platforms at the moment. On the other hand, the decline indicates that offshore platforms are currently receiving more deposits (or watching for fewer withdrawals).
Now, here’s a chart showing the trend in the ratio of US Bitcoin exchange reserves versus offshore platforms over the past two cycles:
The value of the metric seems to have been going down in recent months | Source: CryptoQuant
As shown in the chart above, the ratio of bitcoin exchange reserves for these groups of platforms has been declining continuously in recent months. In fact, the index has been riding an overall downtrend since 2014, which means that the share of US-based exchanges has been shrinking over the years.
This trend would make sense as many new offshore exchanges appeared (and grew to significant sizes) during this period as cryptocurrency became popular around the world.
However, there have been some extensions in the past, where the scale has deviated from this downtrend line. Quantum highlighted these events in the graph.
Interestingly, these periods of upward trend in the Bitcoin exchange reserve ratio came as bear markets ended, and a build-up towards bull markets occurred.
This may indicate that US-based platforms have historically grown their holdings relative to foreign exchanges when the asset was trending in bull markets.
Recently, however, the Bitcoin exchange reserve ratio has not shown any signs of collapsing away from its downtrend structure so far, which means that holdings of these exchanges are still declining.
The analyst notes that “the proportion of bitcoin held by US-based exchanges, banks and funds has not yet risen.” “I think it’s still too early for a real bull market.”
BTC price
At the time of writing, Bitcoin is trading at around $28,000, down 9% in the past week.
Looks like the value of the asset has plunged during the last few days | Source: BTCUSD on TradingView
Featured image by Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com