Judging user sentiment by the amount of BTC on the exchange, is it buying or selling?

Let me first state the conclusion. The BTC inventory data does not mean that it will definitely rise or fall, but it reflects the truest emotions of the currency holders. If the emotions are unanimous that the rise may enter a period of fatigue, the#BTCinventory in the exchange will continue to rise. When users are optimistic about the future market, the BTC inventory in the exchange will often drop significantly.

In simple terms, the increase in the exchange's inventory brings increased risk. Although it will not affect the price change, the higher the inventory, the more bearish the user sentiment is (short-term), and the greater the risk. When the exchange's inventory is lower, the user sentiment is more bullish (medium- to long-term), and the risk is lower.

Back to the data, let’s first look at Figure 1. Figure 1 shows the changes in the stock of BTC in all transactions over the past five years.

Gray represents the change in BTC price

Purple represents the amount of BTC on the exchange

There are three different color bands in the picture. The yellow band corresponds to the high point of#Bitcoinprice. It can be clearly seen that the high point of price is often not the high point of inventory. For example, at the beginning of 2021 (the first yellow light band), although everyone expected the price of BTC to rise sharply, almost no one could guess that it would rise by more than US$65,000.

Therefore, it can be clearly seen that as the price of BTC rises, the inventory in the exchange increases. This is because everyone has no way to predict the peak. In order to prevent being unable to exit the market at a high level, BTC is first transferred to the exchange. And the most critical point is that in 2021, retail investors are still the focus of the market.

This is also because the price rose too quickly at the beginning of 2021, with a new high almost every day. Therefore, even if users keep BTC in exchanges, not many BTC leave the exchanges every day. This is why the price increase has not been affected despite the heavy volume. See Figure 2

The blue in Figure 2 represents the net flow of BTC. The area above the horizontal line is net inflow, and the area below the horizontal line is net outflow.

Therefore, it can be clearly seen that when everyone was expecting $100,000, investors were very FOMO. Even after the 519 incident, the inventory in the exchange (yellow belt) did not decrease significantly, and not many BTC left the exchange, which means that everyone unanimously believed that there would be a second peak.

Later, when BTC fell below $30,000 and rebounded to $40,000, a group of investors did leave the market due to panic, but most investors continued to transfer BTC to exchanges due to price increases. In September, the news that BTC futures ETF was approved also became the fuse of the second wave. During this period, the stock of BTC was still mainly increased.

Later, due to the collapse of FTX (the pink band in Figures 1 and 2), a large amount of BTC holdings in the exchange were sold off. In fact, although it also happened during Luna, it was not as pure as during FTX. The fact is that in November 2022, BTC at around US$16,000 was the bottom of this cycle. A large number of investors bought BTC during this period and exited the market because they were optimistic about the BTC rebound trend in the medium and long term.

Judging from Figure 3, although the BTC inventory on the exchange will fluctuate in the next period of time, it is far from the peak in 2021. Especially with the approval of spot ETFs, a large number of institutions have begun to buy BTC. According to data as of October 1, 2024, known ETF institutions have purchased more than 1 million BTC, of ​​which the United States accounts for 930,000.

Therefore, the number of BTC willing to circulate in the market is actually decreasing. As of today, the lowest stock in the past five years is only 150,000 BTC.

Going back to Figure 1, the green band represents the high point of BTC's inventory in the exchange stage, which also represents that user emotions have reached their peak. A large number of investors will sell off on a large scale if there is obvious negative news while they are wavering. Facts have proved that the higher the inventory of the exchange, the greater the risk of a large-scale market crash.

In conjunction with the exchange's inventory, there is another very important data, which is the changes in long-term holders, as shown in Figure 4.

It can be clearly seen in Figure 4 that the distribution to long-term holders has ended since April 2024, and this part of the distribution is most likely not the departure of real long-term holders, but a large-scale sell-off of Grayscale GBTC. From the data of BTC spot ETF, it can be seen that as April began, the selling of GBTC has begun to decrease significantly, so long-term holders have begun to accumulate again.

BTC spot ETF data: https://docs.google.com/spreadsheets/d/1W7JJ8lMQiUUlBb9U-BvFoq2H-2o5CpUuPO4D_KK3Ubw/edit?usp=sharing

So far, the number of BTC that have not moved in 155 days has exceeded 1.415 million. This is also the reason why the exchange inventory is continuously decreasing, because more investors believe that the current price is not the top and there is still an expectation of rising prices. You must know that there are more and more institutional investors at present, and these investors have clearly seen that there is no intention of short-term turnover.

Therefore, we can believe that when more and more BTC accumulates in the exchange, although the price may continue to rise, the risk will also rise. When the BTC accumulation in the exchange decreases, although it does not mean that the price will definitely rise, the risk of BTC price will also decrease, and every time the price drops, there will be a large number of bottom-fishing.

Therefore, the BTC inventory of the exchange is a good indicator of the sentiment of holders. Combining the data of long-term holders and the data of transfers in and out of the exchange can better judge the trend.

This tweet is sponsored by @ApeXProtocolCN | Dex With ApeX