On-chain data shows that Bitcoin’s “average exchange flow” has seen a rally recently, which could be bearish for the value of the asset.
The average bitcoin exchange flow has risen to high values
As one analyst at CryptoQuant pointed out: mailCryptocurrency may soon be corrected. Average Exchange Flow is an indicator that measures the average amount of Bitcoin currently deposited in the wallets of all centralized exchanges.
This metric should not be confused with “exchange flow,” which tells us the total amount of bitcoin going to these platforms. While the exchange flow is useful, it may not provide an accurate picture of the trend being followed across the market as only a few whales, moving huge volumes, can easily distort the scale.
Average Exchange Flow, on the other hand, calculates the amount that Average Exchange Flow is moving at the moment, giving a better representation of the behavior of the average investor in the market.
When the value of this indicator is high, it means that the average holder is currently sending a large number of coins to the exchanges. Since shorting is one of the main purposes behind investors depositing with these platforms, this type of trend could be a sign that investors are engaging in large amounts of shorting right now.
Now, here is a graph that shows the trend in the average bitcoin exchange flow over the past few days:
The value of the indicator seems to have registered a large spike recently | Source: CryptoQuant
As shown in the chart above, the average Bitcoin exchange flow has recorded a sharp rise over the past day. This may indicate that the average investor has increased the amount he was sending to these platforms.
At the peak of this rally, the index reached a value of 18.45, which means that the average volume of transactions destined for the exchanges was around 18.45 BTC.
From the chart, it is evident that the levels reached by the metric during this latest rally are unparalleled since the recent rally in the cryptocurrency price began.
So far, Bitcoin has not noticed any downward impact from this inflow of exchange, as the currency has been moving sideways. This may indicate that if these large deposits have already been sold, the market currently has enough buying pressure not to feel any negative effects from it.
Another possibility, though, is that the rally was a sign that investors only deposited coins upfront; They haven’t really pulled the trigger to sell them yet. In this scenario, a pullback for BTC may appear in the near future.
BTC price
At the time of writing, Bitcoin was trading at around $30,300, up 14% in the past week.
BTC has only consolidated in the past few days | Source: BTCUSD on TradingView
Featured image by Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com