Bitcoin's Price Recovers as Exchange Outflows Spike: A Data Perspective by IntoTheBlock
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Bitcoin's Price Recovers as Exchange Outflows Spike: A Data Perspective by IntoTheBlock

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Created 1yr ago, last updated 1yr ago

This week, IntoTheBlock takes a look at what's going on with Bitcoin's recent price rise.

Bitcoin's Price Recovers as Exchange Outflows Spike: A Data Perspective by IntoTheBlock

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Every week, IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry. 

Bitcoin's Price Recovers as Exchange Outflows Spike

During these past weeks the crypto market has experienced market changing events. Several tech companies started looking deeply into the blockchain arena, and Google loosening measures for crypto platforms to advertise on their search engine. Between these and the anticipation of Ethereum’s hard fork upgrade, prices of several tokens rose and retested levels not seen since May. In this article we are going to explore several indicators that reflect and may have been linked to the recent momentum in crypto markets, specifically in Bitcoin. 
As of Aug. 3, 2021 using IntoTheBlock’s capital markets insights

The price performance indicator clearly shows the market awakening from what many were calling a bear market. There are several other indicators that clearly show patterns that reflect this change in sentiment, such as flows of crypto in and out of exchanges. 

The exchange analytics on IntoTheBlock provide an overview of on-chain transfers to and from centralized exchanges. This allows users to see how many tokens are being transferred to and from the exchanges selected. This also provides insights into the market sentiment by providing an idea of how traders are allocating their holdings. 

The Net Flows indicator highlights the total sum of traders sending money in and out of exchanges. The indicator shows the sum of tokens received minus tokens leaving exchanges. On the indicator negative values will represent the excess of outflows relative to inflows, while positive values represent the greater amounts of inflows into exchanges.

As of Aug. 3, 2021 using IntoTheBlock’s Bitcoin exchange metrics

This indicator gives insights into the market positioning. People withdrawing tokens from exchanges are probably looking to hold their tokens into the future, and looking for higher safety or yield on top of their crypto-assets. For instance, users may prefer to store their holdings in cold wallet storage, while others prefer to lend out their holdings through different centralized or decentralized lending platforms to earn interest. 

Whereas people sending tokens to exchanges are probably looking into trading the tokens and mostly taking profits, in which we usually see negative price fluctuations. During the recent price fluctuations on July 28th 2021 the indicator recorded a low point in which 32.98K BTC left the exchanges addresses.

Tokens leaving exchanges pass onto an illiquid trading state, the higher this illiquid state the more demand there will be for the liquid trading tokens. Liquid trending tokens are categorized as the ones sitting on exchanges. The more people are withdrawing their tokens from exchanges the less available liquid tokens there are to buy.

The outflow volume indicator shows the amount of tokens leaving exchanges, in this case BTC. This is helpful to track big token withdrawals and try to anticipate market volatility.

As of Aug. 3, 2021 using IntoTheBlock’s Bitcoin exchange metrics

During this recent price breakthrough the indicator showed a clear correlation between price and the outflow volume. Using IntoTheBlock’s data for the month of July we obtain a 30-day correlation of 0.33 between Bitcoin’s outflow volume and its price, suggesting a moderately high positive relationship between the two. 

While keeping track of the exchange analytics area is important, the on-chain transaction activity is equally as significant. The transaction volume indicator allows us to see spikes of on-chain activity which usually tend to come hand in hand with price fluctuations.

As of Aug. 3, 2021 using IntoTheBlock’s Bitcoin network metrics

During the recent break-out the indicator showed a clear relation of the on-chain recorded transactions and the price fluctuation. This is important to keep into account since high transaction volume activity together with an increase in price are typically signs that represent strength and health in the market. During the last price fluctuations the indicator recorded a significant spike on the transaction volume activity.

Clear evidence is shown of the relation and connection of different sectors of the industry to price fluctuations. It can be seen how specific indicators showed signs of confidence during the market momentum experienced recently. Keeping track of the indicators over time helps spot reversals and break-outs.

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