Could exchange deposit volume be an indicator for market sentiment?

September 23, 2022

Note: Not Financial Advice

Exchange deposit volume has long been used as an indicator by traders for bearish and bullish market sentiment. Traders sending funds to a centralized exchange for example, are seen as a sign they wish to exit or swap their position, whereas withdrawals are regarded as a sign that one wishes to hold a token.

But what do the types of assets flowing into exchanges tell us about broader market sentiment?

Note on Definitions

We define stablecoins as the most used tokens pegged to off-chain currencies like the US Dollar (for example, USDC & USDT). Risk assets are defined as all cryptoassets that do not fit into the above definition.


2020-22: BTC Price/% Stablecoin Deposits & % Risk Asset Deposits (Source: Arkham Research)

As shown by the chart, during bearish conditions (when BTC’s price is down), the majority of exchange deposit volume is in stablecoins. In periods of bullishness (BTC’s price is up), the majority of exchange deposits are risk assets.

From mid-2020 onwards, risk assets’ share of deposit volume saw a significant uptrend, preceding the bull run of Bitcoin to $60,000. Once risk asset deposit volumes exceeded 50%, conditions hit full bull run. Interestingly, risk deposit percentages peaked right before Bitcoin’s price peaked.

Some months later, in May 2021, the entire crypto market crashed, and with it, risk asset deposit volumes never regained their exchange deposit volume. Even when Bitcoin had a further run up some months later to an all time high of $69,000.

Around July of 2022, stablecoins began to dominate exchange deposit volumes, coinciding with the drift into the current bear market.

What does this mean?

The conclusion appears to be that if risk deposit percentages exceed 50%, this signifies clear risk on conditions. Meaning people are interacting more with risky assets over stable ones.  At the conclusion of a bear market, we can expect then to see a similar uptrend in risk deposit percentages relative to stablecoin deposit percentages. Once risk deposit percentages crossover stablecoin deposit percentages, this signifies the market being clearly risk-on, reflected in more bullish conditions.

We hypothesize that this is a pattern. Looking at this chart for the same from 2019, these trends are not isolated to the past few years.

2019: BTC Price/% Stablecoin Deposits & % Risk Asset Deposits (Source: Arkham Research)

As is clear from the above graph, a similar pattern of risk asset deposits rising prior to a bull run in Bitcoin’s price took place, with a similar reversion to more stablecoin deposits as Bitcoin’s price declined. As such, this trend has now played out more than once in Crypto’s short history & it is very possible it will play out again in future.