Bitcoin Exchange Reserve Has Only Seen A Minimal Decrease In Recent Years

The exchange balance, a measure of the total amount of Bitcoin sitting in the wallets of centralized exchanges, has often been a hot topic in the on-chain analysis community.

Analytics firm Glassnode has highlighted that centralized cryptocurrency exchanges have not been losing their Bitcoin (BTC) holdings to the extent that was previously believed.

Bitcoin Exchange Reserves Showed Minimal Decrease

The exchange balance, which measures the total amount of Bitcoin present in the wallets of centralized exchanges, has been a key topic of discussion within the on-chain analysis community.

Investors utilize these platforms for selling purposes, leading many to view the exchange balance as a reflection of the “available” trade supply of BTC.

An interesting pattern has emerged regarding this supply on exchanges in recent years, with its value showing a continuous decline. This indicated that investors were consistently moving coins out of exchanges, reducing the potential sell supply of the cryptocurrency.

Some members of the community observed this trend and suggested that Bitcoin was heading toward a supply shock. However, this idea faced opposition, as البعض questioned whether the outflows were a natural consequence of shifting market dynamics rather than a widespread shift toward HODLing.

A recent modification by Glassnode to one of its indicators may have further challenged the supply shock theory. As noted by the analytics firm in its changelog, the Coinbase balance has been updated to include new entities.

Previously, these labels were linked to Coinbase Custody in our database. We have, however, decided to do away with this distinction as differentiation from an on-chain perspective is not always clear.

The Coinbase Custody includes coins from large entities, such as spot exchange-traded funds (ETFs). Hence, the result of this change is a significant increase in the Coinbase balance.

As shown in the chart below, while the exchange balance appeared to be sharply declining earlier, this modification has caused its value to move more or less sideways over the last few years.

In an X post, on-chain analyst Checkmate also touched upon this topic. “Exchange balances are notoriously difficult to parse and monitor,” said the analyst. “They are an advanced metric, valuable only if you know what you're doing.”

As Checkmate pointed out, the broader exchange balance chart has also appeared flat in recent years.

“Many folks who have been talking about endless outflows did not factor in the Bitcoin held by Coinbase custody,” noted Checkmate. In March 2020, total exchange balance was 3.146m BTC; today it is 2.968m.”

There have still been net outflows since then, but the decrease is only 178k BTC, which isn't much in the grand scheme.

BTC Price

At the time of writing, Bitcoin is trading around $62,700, having gained over 2% over the past week.