On-chain data shows that the Bitcoin Interexchange Flow Pulse is about to see a trend reversal, here’s what it could mean for the price of the crypto.
Bitcoin Interexchange Flow Pulse exceeds its 90-day MA
According to CryptoQuant’s on-chain year-end dashboard release, the trend shifts in this metric have historically occurred with phase changes in the market. The “Interexchange Flow Pulse” is an indicator that shows the 1-year cumulative net flows between Coinbase and derivative exchanges.
When the value of this measure increases, it means that investors are currently transferring more coins from spot to derivatives exchanges, and are therefore willing to take on more risk. On the other hand, low values suggest that not much capital is currently flowing into the derivatives exchanges.
Here is a chart showing the trend in the Bitcoin Interexchange Flow Pulse, as well as the 90-day moving average (MA) over the past few years:
Looks like the value of the metric may be beginning to turn around | Source: CryptoQuant
As you can see in the chart above, historically a pattern appears to have followed with the Bitcoin Interexchange Flow Pulse during bull-bear trends in the price of the crypto. Whenever the coin has observed a bullish period, the indicator has seen a steady increase and has remained above its 90-day MA.
The reason behind this is that investors are generally willing to take on more risk during bull markets and therefore send increasing amounts of money to derivatives exchanges to set up leveraged positions.
However, when the metric has reversed direction and passed below the 90-day MA, a top formation has occurred in the price of BTC and the bullish trend has ended. In the bear markets following such periods, the Interexchange Flow Pulse has usually continued to decline and has remained below the 3-month average. Again, why this happens is simple; bear markets are when the average holder is unwilling to take on any risk, causing the flow of capital to derivatives to dry up.
This trend in the indicator continues until the turning point occurs again, where the price forms the bottom and the metric begins to move back up in the opposite direction (exceeding the 90-day MA).
Also in the current bear market, the Bitcoin Interexchange Flow Pulse has consistently moved down while remaining below its 90-day MA. Most recently, however, the decline seems to have stopped and now the indicator is testing its long-term average again.
If the historical pattern is anything to go by, a successful crossover and reversal in the trajectory of the Interexchange Flow Pulse would spell the bear here bottom is in for the current cycle, and a slow transition to a bull market could follow.
BTC price
At the time of writing, Bitcoin’s price is hovering around $16,600, down 1% over the past week.
The value of the crypto seems to have declined over the last couple of days | Source: BTCUSD on TradingView
Featured image by Maxim Hopman on Unsplash.com, charts from TradingView.com, CryptoQuant.com
