Exchange reserves are the total amount of cryptocurrency held on centralized exchange platforms rather than in self-custody wallets. High exchange reserves suggest potential selling pressure as traders keep crypto on exchanges to sell quickly, while declining reserves indicate accumulation as holders move coins to cold storage for long-term holding. Monitoring exchange reserves helps identify whether market participants are preparing to sell (bearish) or accumulate for the long term (bullish).
Example:
From January to October 2024, Bitcoin exchange reserves declined from 2.8 million BTC to 2.3 million BTC. This net outflow of 500,000 BTC (worth $40+ billion at $80,000) moved to cold storage. This declining exchange supply signaled accumulation as holders removed Bitcoin from exchanges, reducing available sell-side liquidity. During this period, Bitcoin rallied from $45,000 to $110,000 (144% gain). Conversely, when exchange reserves spiked by 200,000 BTC in late 2021 near Bitcoin's $69,000 peak, it signaled distribution as holders moved coins to exchanges to sell, preceding the 75% crash.