Bitcoin exchange balances at three-year low

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The following is taken from a recent edition of Deep Dive, Bitcoin Magazine’s premium market newsletter. To be among the first to receive this and other on-chain bitcoin market analysis straight to your inbox, subscribe now.

With the price of bitcoin falling below $ 60,000, let’s review the current state of exchange balances and bitcoin exchange flow activity. At the macro level, the decline in bitcoin supply on the exchanges continues, with the percentage of bitcoin on the outstanding supply exchanges hitting a new three-year low yesterday. The secular decline in the foreign exchange balance that began in March 2020 has not changed.

Source: Glassnode

During the previous all-time high for the summer, we saw an increase in the exchange offer percentage as more bitcoin poured into the exchanges to sell the top. Still, the supply of the currency balance has fallen 9%, to more than 250,000 BTC, since the peak in June of this year and appears to be continuing the trend. If this was the peak of the macro cycle, we would expect to see more bitcoin pouring into the exchanges for sale.

Source: Glassnode

Another way to view the foreign exchange balance activity is to look at the daily net flow volume which can be inflows or outflows. Exchange wallets and addresses are categorized using Glassnode’s proprietary data science, statistics, and clustering techniques. In general, we want to be careful in interpreting this data because trade classifications are difficult to make and constantly change as trading practices change. For example, let’s say there’s an alert that shows 10,000 BTC coming out of an exchange on a specific day. It is best to wait a few days to confirm that this is not an unclassified internal exchange wallet transfer.

To account for daily volume changes and show broader trends, we can look at a 14-day moving average of the data. Compared to record accelerations and previous highs, we have seen much higher inflow activity in the market that we are not seeing today. If this was the macro peak, we would expect to see higher currency inflows to indicate increased sales.

Source: Glassnode

As stock market balances hit new lows, over-the-counter balances are increasing. A few months after the secular market shift in March 2020, there has been a growing and sustained correlation between no-trade balances and the price of bitcoin. This is a unique period compared to the last five years. This is another way of illustrating the effect of the dynamics of the supply shock on prices that we have already discussed. In the history of bitcoin, we have never seen bitcoin leave trading at this rate. Assuming bitcoin is out of the market, less supply is available for purchase, putting upward pressure on prices as new demand kicks in.

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