Understanding Crypto On-Chain Metrics Series Part 1: Exchange Reserve.

There are Only 2 Ways Investor Can Hold Their Crypto:

1. Decentralized Private Wallets
2. Centralized Exchange

Just 12.53% of the Total supply of Bitcoin & 15.46% of the Total supply of Ethereum are available on exchanges.

So Most of The Supply of Bitcoin and Ethereum is Stored in private wallets Because Holding Crypto in the Exchange Can be Risky Compared to Holding in Private Wallets.

1. Increase in Exchange Reserves

• Market Sentiment: An increase in the exchange reserve indicates that more Bitcoin is being deposited into exchanges. This might suggest that holders are preparing to sell their Bitcoin, which could indicate bearish sentiment.
• Price Pressure: When more Bitcoin is available on exchanges, the increased supply can put downward pressure on the price, especially if the market demand doesn’t match the supply.

2. Decrease in Exchange Reserves

• Market Sentiment: A decrease in exchange reserves typically means that Bitcoin is withdrawn from exchanges to personal wallets. This might suggest that holders are planning to hold onto their Bitcoin for the long term, reflecting bullish sentiment.
• Price Support: When Bitcoin is moved off exchanges, the supply available for sale decreases. This can lead to upward pressure on the price, particularly if demand remains strong or increases.

This is how the change in the exchange reserve can give us early insight into what smart money is doing.

Bitcoin’s Exchange Reserve fell from 3.3 Million BTC to 2.95 Million BTC in the Last Quarter of 2022, this is an indication of the Accumulation Phase which Resulted in Bitcoin Making its Low in December 2022 at $16K/BTC.

Since January 2024 BTC’s Exchange Reserve has Falling Because of Bitcoin ETF Approval In the United States.

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