Exchange reserve metrics, which track the amount of cryptocurrency held on exchanges, can be somewhat reliable during market turmoil but have limitations. They often indicate investor sentiment—rising reserves may suggest selling pressure, while declining reserves could signal holding or withdrawal to cold storage. However, these metrics don’t account for off-chain activity, OTC trades, or funds held in untracked wallets. During volatility, manipulative practices like spoofing or wash trading can distort data. Centralized exchange transparency varies, and some may misreport reserves, as seen with FTX’s collapse in 2022. On-chain analytics from firms like Glassnode or CryptoQuant can enhance reliability, but real-time accuracy remains a challenge. Thus, while useful as a trend indicator, exchange reserve metrics should be cross-checked with other data sources for a clearer picture during chaotic markets.
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