Binance stablecoin outflows signal shift to a bear market

Binance’s stablecoin reserves have been declining since the end of November, almost three months from their peak. A decline of reserves recalls previous bear markets, though Binance remains the most liquid exchange. 

Binance was known for holding stablecoins waiting in the sidelines, with over $43.6B in reserves at one point. However, in the past three months, the reserves have been in constant decline. The outflows coincide with a period where whales cashed out BTC, ETH, or altcoins through Binance. 

As of February 16, Binance only held around $36B in stablecoins. As Cryptopolitan reported earlier, the outflow also marks the abandonment of BNB, the native asset of BNB Chain. 

A significant part of the outflows may come from panic withdrawals, as social media influencers called for traders to move their funds from Binance. The total outflows, including other crypto coins and tokens, may have taken up to 30% of Binance’s total reserves. Tokens like XRP saw significant withdrawals. ETH reserves fell to 3.7M tokens, the lowest since 2024. 

Stablecoin outflows may signal a bear market

Previous bear markets show that three months of stablecoin outflows mean a persistent loss of liquidity. The recent contraction of liquidity resembles some periods during the 2023 bear market. 

Outflows from Binance are an indicator that investors are rearranging their positions and liquidity. Instead of waiting to buy, capital is slowly leaking out of the exchange ecosystem. 

Binance has attracted some stablecoin deposits through its special yield programs, but this is not a sufficient incentive to keep funds on the exchange. The other chief reason was recent fears of insolvency, leading some traders to withdraw their funds. 

In December and January, stablecoin outflows accelerated. The drop was even steeper in February, with $3B lost over the past two weeks. 

Stablecoins have several alternative destinations, especially lending protocols. Decentralized on-chain protocols also hold risk, but are not under centralized control. 

BNB Chain continues to mark outflows

Decentralized on-chain liquidity is also drained from the Binance ecosystem. BNB Chain is among the biggest losers of liquidity on the weekly and monthly leaderboard, according to Artemis data. 

In the past three months, BNB Chain lost $219M in net liquidity, the second-biggest outflow after Arbitrum. BNB Chain still hosts a lively meme token market. The chain hosts $5.7B in liquidity, driven by PancakeSwap trading. 

As BNB sank to $615, interest in the ecosystem diminished. The loss of liquidity may affect the wider ecosystem, as BNB Chain remains one of the biggest venues for DeFi. 

BNB Chain still has 4.4M daily active users, with no rapid outflows. The chain hosts low-cost meme token activity and transactions, but more cautious behavior from whale-sized traders in DeFi.