The price of bitcoin is hovering above the fragile $19,000 Support for months, but trading volume is increasing. It’s amazing Since the low volatility in the crypto market does not encourage investors to make big moves.
Nevertheless, in the background of this monotony comes on-chain data. This suggests that BTC tokens are disappearing from exchanges which has not been seen since early 2020. This is creating a situation where exchange deposits are back to lows seen 2.5 years ago, as the big players can buy every dip. If this trend persists, it could shock the supply of bitcoin, which could be a catalyst for a bullish reversal in the cryptocurrency market.
Bitcoin is disappearing from exchanges
One way to measure the ratio between the demand and supply of bitcoin is the Exchange NetFlow Volume Indicator. It expresses the difference in volume coming in and out of exchanges, i.e. net flow of coins in/out of exchanges.
High, green values of this indicator usually appear at the end of a bull market and/or are a sign of an imminent decline. Low, red values often appear near the bottom of a bear market, indicating the possibility of a move up. The greater the deviation of the indicator from zero, the greater the supply imbalance of bitcoin on exchanges. This could be a catalyst for higher volatility in the BTC price.
The 14-day moving average of exchange netflow volume has reached values not seen since the March 2020 crash. This means that the difference between the inflow and outflow of coins on the exchanges is reaching peak values.
Last time we saw such low values of the indicator during the following periods (blue areas):
- Strong V-shaped recovery of BTC price after March 2020 crash
- The beginning of the bull run in late 2020, when bitcoin was about to break the historic 2017 ATH of $20,000,
- BTC price bounce back below $29,000 and the start of a rally towards the current ATH of $69,000 after the summer of 2021,
- Decline at the end of June 2022 and the current BTC price down at $17,600.
Are Institutional Investors Buying BTC Dips?
The above data points to an imminent BTC supply shock, which could be the catalyst for a bullish reversal in the crypto market. The blow will not come only from large outflows from exchanges. They have risen recently (green), but are well below BTC’s biggest lows in the past 2 years (red).
The high value of the Exchange NetFlow Volume Indicator is currently the result of large outflows and extremely low BTC inflows to exchanges. In the chart below, we can see that bitcoin is in a strong downtrend (green) across exchanges today. In most other cases, the inflow was as large as the outflow (red and orange) during the period below prices.
Conversely, outflows from exchanges can be correlated with purchases by institutional investors. A good clue to this argument is a chart of outflows from Coinbase Pro, an exchange considered to be the gateway to the crypto market for United States institutions.
On the daily chart of outflows from Coinbase Pro, we see that the institutional “smart money” has a downside buying trend. Comparing Coinbase outflow volume to the previous bear market lows of 2018-19, we also see two highs on the chart. These two were correlated with BTC price near $3500. Soon after, there was an increase.
Exchange deposits hit 2.5 year low
The confluence with the on-chain data above is another indicator of exchange deposits. Similar to the Exchange Inflows indicator, it measures the total number of transfers to an exchange address, i.e. the number of on-chain deposits to exchanges.
Historically, exchange deposits have generally been positively correlated with the price of BTC. This means that if the number of deposits on exchanges increases, so does the price of bitcoin. Conversely, when the number of deposits decreases, the price of BTC also falls.
Currently, exchange deposits have hit a 2.5-year low since a similar low was last seen in April 2020. At the time, the price of BTC was around $7,500 and was recovering from the March 2020 crash. Although the drop in the number of deposits is yet to show signs of a reversal, a low level of this indicator could signal the end of the crypto bear market.
For the latest Bitcoin (BTC) analysis from BeInCrypto, click here,
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