Is Bitcoin Bull Market Here? This Metric May Say No
A pattern in the Bitcoin exchange reserve rate that historically preceded the start of bull runs has yet to form for the cryptocurrency.
Bitcoin’s FX Reserve Rate Has Continued to Decline Recently
As pointed out by an analyst in a CryptoQuant post, bull markets in the past started with US stocks increasing their holdings. The relevant indicator here is the “FX booking ratio”, which measures the ratio between the FX reserves of any two exchange platforms or groups of them.
The “exchange reserve” here refers to a metric that tells us the total amount of Bitcoin that is currently in the wallets of a centralized exchange (or the combined wallets of multiple platforms).
In the context of the current discussion, the foreign exchange reserve ratio is being taken between the combined reserve of US and foreign platforms.
When the value of this ratio increases, it means that the total number of coins on US exchanges is rising relative to global platforms at the moment. On the other hand, a decline implies that offshore platforms are taking more deposits (or just seeing less withdrawals) these days.
Now, here’s a graph that shows the trend in the Bitcoin exchange reserve rate for the US 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 Bitcoin exchange reserve fee for these sets of platforms has been steadily decreasing over the past few months. In fact, the indicator has been showing a general downward trend since 2014, which means that the share of US-based exchanges has been decreasing over the years.
This trend would make sense as many new offshore exchanges emerged (and grew to considerable sizes) during this time as cryptocurrency became popular around the world.
However, there have been some stretches in the past where the metric has deviated from this downtrend line. The quant highlighted these occurrences on the graph.
Interestingly, these bullish periods for the Bitcoin exchange reserve rate occurred when the bear markets ended and the accumulation of bull markets took place.
This suggests that US-based platforms have historically increased their holdings against foreign exchanges when the asset was heading to bull markets.
Recently, however, the Bitcoin exchange reserve rate has shown no signs of breaking the downtrend structure, implying that the holdings of these platforms are still declining.
“The percentage of Bitcoin held by US-based exchanges, banks and funds has yet to increase,” the analyst notes. “I think it’s still too early for a real bull market to arrive.”
At the time of writing, Bitcoin is trading around $28,000, down 9% over the last week.
Looks like the value of the asset has plunged during the last few days | Source: BTCUSD on TradingView
Featured Image of Kanchanara from Unsplash.com, Charts from TradingView.com, CryptoQuant.com