What is liquidity?
Liquidity generally refers to the ease with which an asset can be exchanged for cash without affecting the price of that asset. This definition has two aspects to it: ease (speed and effort required) and price (slippage, or the difference between the expected price and executed price, on a large order). When considering liquidity within the context of crypto exchanges, both components are critical — a trader needs to have transactions completed as quickly and cost effectively as possible. – Source: Crypto Exchange Liquidity
Ether (ETH) and Bitcoin (BTC) liquidity shortfalls are “intensifying” as the amount of either cryptocurrency held on exchanges today has been sliding substantially, and is at its lowest since earlier in Q2 of 2021.
While the price of bitcoin is 38% lower than its $69K price high three months ago, the amount of bitcoin on exchanges is at its lowest figure since April 2021. At the end of July last year, there was 2.59 million bitcoin held by crypto trading platforms, and today there’s only 2.36 million held by exchanges, which means there’s 8.8% fewer bitcoin on exchanges than six months ago.
Exchange reserve is a collective measure of potential coins that are ready to be sold in the market. It is the accumulated result of Exchange In/Outflow & Netflow which naturally follows the indications that in/outflow has. Similar to Exchange NetFlow’s interpretation, an increasing trend in netflow indicates the selling pressure and the decreasing trend indicates the buying pressure.
However, instead of Exchange In/Outflow & Netflow indicating the specific moment or period, Exchange Reserve is easy to track the result of the entire period’s movements. – Source: CryptoQuant
BTC Exchange Reserves Drop 8% Lower Than the Bitcoin Held on Exchanges 6 Months Ago
According to current statistics, there’s 2.363 million bitcoin, or $100 billion worth, of the leading crypto asset held on exchanges. The current value of the bitcoin (BTC) held by centralized exchanges equates to 12.36% of BTC’s overall $809 billion market capitalization.
While 2.363 million is a significant fraction, it’s 8.88% less than the number of bitcoins held on exchanges on July 25, 2021. Too many crypto market participants, and the fact that there’s less BTC on exchanges means less selling pressure going forward.
Metrics indicate that the last time bitcoin exchange reserves were this low was ten months ago, back in April 2021. Combined statistics from Bituniverse, Peckshield, Etherscan, and Chain.info show that the exchange Coinbase holds the most bitcoin (BTC) today with 853,530 BTC held in reserves.
The value of Coinbase’s BTC holdings equates to 35% of the current $100 billion worth of BTC held on exchanges. Binance is the second-largest bitcoin holder, in terms of exchanges, with 339,870 BTC worth $14.5 billion using current bitcoin exchange rates.
Ethereum Exchange Supply Drops, Miners Sell Holdings
Meanwhile, the same can be said about the number of ethereum (ETH) held on centralized exchanges. Data from cryptoquant.com shows there’s 17 million ether held on exchanges today, but that amount has been sliding significantly since May 2021. In May last year, crypto exchanges held 21.9 million ethereum.
This means roughly 22.37% of the ETH held on exchanges has left the market environment for alternative solutions. On the other hand, much of the ETH that has left centralized exchanges since last May could have been transferred to decentralized exchange (dex) platforms.
Currently, the most active crypto exchange in terms of ether trade volume, Binance, holds 3.59 million ETH in reserves. While less BTC and ETH on exchanges could lead to less selling pressure, metrics show that BTC miners have been selling bitcoin.
Miner holdings, according to Glassnode data, went negative on February 5, 2022, for the first time in two months. At the time of writing, cryptoquant.com statistics indicate there’s roughly 1.86 million BTC held by mining entities.