On-chain data shows that Binance USD (BUSD) currency reserves have been falling recently, a factor that could be behind Bitcoin’s slowdown.
Binance USD (BUSD) currency reserves are down
As one analyst pointed out in a CryptoQuant post, there was a very large inflow of $250 million BUSD some time ago. “Currency reserve” is an indicator that measures the total amount of a cryptocurrency (in this case Binance USD) currently stored on wallets of centralized exchanges.
Generally, investors swap their coins for stablecoins like BUSD when they want to avoid the volatility associated with other cryptocurrencies like Bitcoin. When these holders feel prices are right to re-enter volatile markets, they move their stables back to their desired coins. This can act as buying pressure for the specific cryptocurrency they are switching to.
Investors typically use exchanges to trade these coins, which means that whenever the exchange reserve of a stablecoin like BUSD increases, there is a chance that holders may want to buy back into volatile cryptocurrencies. A sufficiently large increase in the stablecoin reserve can lead to high buying pressure for other coins and therefore have a positive effect on their prices.
Now here is a chart showing the development of the Binance USD exchange reserve (especially for spot exchanges) over the last few months:
The value of the metric seems to have decreased in the past few days | Source: CryptoQuant
As you can see in the chart above, Binance USD currency reserve saw a rapid increase a while ago. Since then, however, the key figure has been steadily declining and has now reached significantly lower values.
But the chart shows that Bitcoin had instead rallied as BUSD reserve retreated from highs. This means that the holders may have been actively trading the stablecoin for BTC, which pushed the price higher.
The chart also shows data for a metric called Exchange Net Flow, which gives us the net number of coins entering or exiting exchange wallets. When this metric has a positive value, it means investors are currently depositing a net amount of the asset on exchanges, while negative values indicate net withdrawals are occurring.
Some time ago, there was a huge positive spike in Binance USD exchange netflow of around $250 million (which caused the reserve to explode). This inflow may have helped the recent BTC rally.
Since then, however, there have only been outflows that have brought the reserve back to where it was before that $250 million surge. This suggests that the buying pressure from this inflow has now dried up, which could be one of the factors responsible for the recent 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 by Nicholas Cappello at Unsplash.com, charts by TradingView.com, CryptoQuant.com
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