On-chain data shows that Binance USD (BUSD) foreign exchange reserves have been declining recently, a factor that could be behind Bitcoin’s slowdown.
Binance USD (BUSD) FX Reserves Dropped
As one analyst pointed out in a CryptoQuant Publish, a while ago there was a very big influx of $250 million BUSD. “Foreign Reserve” is an indicator that measures the total amount of a cryptocurrency (which in this case is Binance USD) currently stored on centralized exchange wallets.
Typically, investors trade their coins for stablecoins like BUSD when they want to avoid the volatility associated with other cryptocurrencies like Bitcoin. When these holders feel that the prices are right to re-enter the volatile markets, they redirect their stables to the desired coins. This can act as buying pressure for the specific crypto they are trading in.
Investors typically use exchanges to trade these coins, which means that whenever the foreign exchange reserve of a stablecoin like BUSD increases, it presents the possibility that holders will want to redeem volatile cryptocurrencies. A large enough increase in the stablecoin reserve can lead to strong buying pressure for other coins and can therefore have a bullish effect on their prices.
Now, here is a graph that shows the trend of Binance USD FX reserve (especially for spot exchanges) over the last two months:
The value of the metric seems to have been going down in recent days | Source: CryptoQuant
As you can see in the graph above, the Binance USD exchange reserve observed a rapid increase some time ago. Since then, however, the metric has steadily declined and has now reached significantly lower values.
But from the chart, it is evident that while the BUSD reserve was falling from high values, Bitcoin had been rising instead. This means that holders might have actively traded the stablecoin for BTC, thereby increasing its price.
The chart also displays data for a metric called “net exchange flow”, which tells us the net number of coins flowing in or out of exchange wallets. When this metric has a positive value, it means that investors are currently depositing a net amount of assets on exchanges, while negative values suggest that net withdrawals are taking place.
A while ago, there was a huge positive spike in Binance USD net exchange flow of around $250 million (which caused the reserve to explode). This influx may have been what helped the recent BTC rally.
However, since then, there have only been outflows, which have brought the reserve back to the same level as before that $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.
As of this writing, Bitcoin is trading around $20,700, up 14% in the past week.
Bitcoin plunges down | Source: BTCUSD on TradingView
Featured image by Nicholas Cappello from Unsplash.com, charts from TradingView.com, CryptoQuant.com